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 10th December)

• December 2018 meeting: Market is attaching 25.1 percent probability that rates will be at 2.00-2.25 percent, and, 74.9 percent probability that rates will be at 2.25-2.50 percent.
   
• January 2019 meeting: Market is attaching 24 percent probability that rates will be at 2.00-2.25 percent, 72.8 percent probability that rates will be at 2.25-2.50 percent, and 3.2 percent probability that rates will be at 2.50-2.75 percent.
   
• March 2019 meeting: Market is attaching 17.6 percent probability that rates will be at 2.00-2.25 percent, 59.7 percent probability that rates will be at 2.25-2.50 percent, and 21.6 percent probability that rates will be at 2.50-2.75 percent, and 1 percent probability that rates will be at 2.75-3.00 percent.
   
• May 2019 meeting: Market is attaching 16 percent probability that rates will be at 2.00-2.25 percent, 55.9 percent probability that rates will be at 2.25-2.50 percent, and 25.1 percent probability that rates will be at 2.50-2.75 percent, and 3 percent probability that rates will be at 2.75-3.00 percent.
   
• June 2019 meeting: Market is attaching 13.1 percent probability that rates will be at 2.00-2.25 percent, 48.6 percent probability that rates will be at 2.25-2.50 percent, and 30.7 percent probability that rates will be at 2.50-2.75 percent, 7 percent probability that rates will be at 2.75-3.00 percent, 0.6 percent probability that rates will be at 3.00-3.25 percent.
   
• July 2019 meeting: Market is attaching 12.3 percent probability that rates will be at 2.00-2.25 percent, 46.4 percent probability that rates will be at 2.25-2.50 percent, and 31.8 percent probability that rates will be at 2.50-2.75 percent, 8.4 percent probability that rates will be at 2.75-3.00 percent, 1 percent probability that rates will be at 3.00-3.25 percent, and 0.1 percent probability that rates will be at 3.25-3.50 percent.
   
• September 2019 meeting: Market is attaching 11.3 percent probability that rates will be at 2.00-2.25 percent, 43.6 percent probability that rates will be at 2.25-2.50 percent, and 33 percent probability that rates will be at 2.50-2.75 percent, 10.4 percent probability that rates will be at 2.75-3.00 percent, 1.6 percent probability that rates will be at 3.00-3.25 percent, and 0.1 percent probability that rates will be at 3.25-3.50 percent.
   
• October 2019 meeting: Market is attaching 10.5 percent probability that rates will be at 2.00-2.25 percent, 41.5 percent probability that rates will be at 2.25-2.50 percent, and 34.1 percent probability that rates will be at 2.50-2.75 percent, 11.7 percent probability that rates will be at 2.75-3.00 percent, 2 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.
   

The probability is suggesting,

• Since our last review a week ago, the probabilities have eased sharply. In the previous week, it had tightened sharply
• The market is pricing the fourth hike in December with 74.9 percent probability compared to 85.2 percent a week ago.
• The first rate hike of 2019 is priced in March with 22.6 percent probability, compared to 48.8 percent a week ago.
• The second hike for 2019 is now priced in September with a 12.1 percent probability, compared to 28.8 percent a week ago. 
• The probabilities have changed significantly over the past three weeks. The market has significantly repriced