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 3rd June)

• June 2019 meeting: Market is attaching 17.5 percent probability that rates will be at 2.00-2.25 percent, and 82.5 percent probability that rates will be at 2.25-2.50 percent.
   
• July 2019 meeting: Market is attaching 8.3 percent probability that rates will be at 1.75-2.00 percent, 48.4 percent probability that rates will be at 2.00-2.25 percent, and 43.3 percent probability that rates will be at 2.25-2.50 percent.
   
• September 2019 meeting: Market is attaching 32.9 percent probability that rates will be at 1.75-2.00 percent, 45.8 percent probability that rates will be at 2.00-2.25 percent, and 21.3 percent probability that rates will be at 2.25-2.50 percent.
   
• October 2019 meeting: Market is attaching 17.7 percent probability that rates will be at 1.50-1.75 percent, 36.7 percent probability that rates will be at 1.75-2.00 percent, 34.3 percent probability that rates will be at 2.00-2.25 percent, and 11.3 percent probability that rates will be at 2.25-2.50 percent.
   
• December 2019 meeting: Market is attaching 38.3 percent probability that rates will be at 1.50-1.75 percent, 35.4 percent probability that rates will be at 1.75-2.00 percent, 21.4 percent probability that rates will be at 2.00-2.25 percent, and 5 percent probability that rates will be at 2.25-2.50 percent.
   

The probability is suggesting,

• Since our last review a week ago, the probabilities have significantly eased for both the near month and the far months, as some FOMC members hinting at rate cuts going ahead.
• The market is pricing the possibility of a rate cut with 95 percent probability, compared to 74.3 percent last week, and 70.3 percent in the week before that.  The market is pricing a second rate cut with 74.6 percent probability.