Fed Hike aftermath Series: Hike probabilities over coming meetings

FOMC increased interest rates in March, June and in September. Increased its forecast from three rate hikes in 2018 to four rate hikes. September decision was unanimous. Current Federal funds rate - 200-225 bps (Note, all calculations are based on data as of 3rd December)

• December 2018 meeting: Market is attaching 14.8 percent probability that rates will be at 2.00-2.25 percent, and, 85.2 percent probability that rates will be at 2.25-2.50 percent.
   
• January 2019 meeting: Market is attaching 13.8 percent probability that rates will be at 2.00-2.25 percent, 80.7 percent probability that rates will be at 2.25-2.50 percent, and 5.5 percent probability that rates will be at 2.50-2.75 percent.
   
• March 2019 meeting: Market is attaching 6.4 percent probability that rates will be at 2.00-2.25 percent, 44.9 percent probability that rates will be at 2.25-2.50 percent, and 46.3 percent probability that rates will be at 2.50-2.75 percent, and 2.5 percent probability that rates will be at 2.75-3.00 percent.
   
• May 2019 meeting: Market is attaching 5.8 percent probability that rates will be at 2.00-2.25 percent, 41.4 percent probability that rates will be at 2.25-2.50 percent, and 46.2 percent probability that rates will be at 2.50-2.75 percent, and 6.6 percent probability that rates will be at 2.75-3.00 percent.
   
• June 2019 meeting: Market is attaching 4.4 percent probability that rates will be at 2.00-2.25 percent, 32.8 percent probability that rates will be at 2.25-2.50 percent, and 44.9 percent probability that rates will be at 2.50-2.75 percent, 16 percent probability that rates will be at 2.75-3.00 percent, 1.9 percent probability that rates will be at 3.00-3.25 percent.
   
• July 2019 meeting: Market is attaching 4 percent probability that rates will be at 2.00-2.25 percent, 30.4 percent probability that rates will be at 2.25-2.50 percent, and 43.9 percent probability that rates will be at 2.50-2.75 percent, 18.4 percent probability that rates will be at 2.75-3.00 percent, 3 percent probability that rates will be at 3.00-3.25 percent, and 0.2 percent probability that rates will be at 3.25-3.50 percent.
   
• September 2019 meeting: Market is attaching 3.5 percent probability that rates will be at 2.00-2.25 percent, 26.6 percent probability that rates will be at 2.25-2.50 percent, and 41.1 percent probability that rates will be at 2.50-2.75 percent, 22.5 percent probability that rates will be at 2.75-3.00 percent, 5.6 percent probability that rates will be at 3.00-3.25 percent, and 0.7 percent probability that rates will be at 3.25-3.50 percent.
   
• October 2019 meeting: Market is attaching 3.4 percent probability that rates will be at 2.00-2.25 percent, 25.8 percent probability that rates will be at 2.25-2.50 percent, and 40.5 percent probability that rates will be at 2.50-2.75 percent, 23 percent probability that rates will be at 2.75-3.00 percent, 6.3 percent probability that rates will be at 3.00-3.25 percent, and 1 percent probability that rates will be at 3.25-3.50 percent.

The probability is suggesting,

• Since our last review a week ago, the probabilities have tightened sharply.
• The market is pricing the fourth hike in December with 85.2 percent probability compared to 74.1 percent a week ago.
• The first rate hike of 2019 is priced in March with 48.8 percent probability, compared to 38.6 percent a week ago.
• The second hike for 2019 is now priced in September with a 28.8 percent probability, compared to 27 percent a week ago.