Fed Hike aftermath Series: Hike probabilities over coming meetings

FOMC followed through its promise and hiked rates four times in 2018 and forecasted two more rate hikes for 2019. Current Federal funds rate - 225-250 bps (Note, all calculations are based on data as of 4th February)

• March 2019 meeting: Market is attaching 98.7 percent probability that rates will be at 2.25-2.50 percent, and 1.3 percent probability that rates will be at 2.50-2.75 percent.
   
• May 2019 meeting: Market is attaching 98.7 percent probability that rates will be at 2.25-2.50 percent, and 1.3 percent probability that rates will be at 2.50-2.75 percent.
   
• June 2019 meeting: Market is attaching 95.4 percent probability that rates will be at 2.25-2.50 percent, and 4.6 percent probability that rates will be at 2.50-2.75 percent.
   
• July 2019 meeting: Market is 1.2 percent probability that rates will be at 2.00-2.25 percent, and 95.5 percent probability that rates will be at 2.25-2.50 percent, and 3.3 percent probability that rates will be at 2.50-2.75 percent.
   
• September 2019 meeting: Market is 1.2 percent probability that rates will be at 2.00-2.25 percent, and 95.5 percent probability that rates will be at 2.25-2.50 percent, and 3.3 percent probability that rates will be at 2.50-2.75 percent.
   
• October 2019 meeting: Market is 1.2 percent probability that rates will be at 2.00-2.25 percent, and 95.5 percent probability that rates will be at 2.25-2.50 percent, and 3.3 percent probability that rates will be at 2.50-2.75 percent.
   
• December 2019 meeting: Market is 8.5 percent probability that rates will be at 2.00-2.25 percent, and 87.4 percent probability that rates will be at 2.25-2.50 percent, and 4.1 percent probability that rates will be at 2.50-2.75 percent.

The probability is suggesting,

• Since our last review a week ago, the probabilities have loosened, especially after Federal Reserve announcement that the central bank would remain patient on future rate hikes.
• The market is pricing just one rate hike for 2019 and that with just 4.1 percent probability, compared to a 26.2 percent a week ago and 23.4 percent in the week before that, which means that the market far from pricing a rate hike in 2019, despite Fed’s forecast of two hikes.
• The market is now pricing a rate cut in 2019 with 8.5 percent probability, compared to 4.3 percent a week ago, and 4.4 percent probability, a week before that.