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 14th June)

• June 2019 meeting: Market is attaching 30.8 percent probability that rates will be at 2.00-2.25 percent, and 69.2 percent probability that rates will be at 2.25-2.50 percent.
   
• July 2019 meeting: Market is attaching 24.9 percent probability that rates will be at 1.75-2.00 percent, 61.7 percent probability that rates will be at 2.00-2.25 percent, and 13.4 percent probability that rates will be at 2.25-2.50 percent.
   
• September 2019 meeting: Market is attaching 19.5 percent probability that rates will be at 1.50-1.75 percent, 53.8 percent probability that rates will be at 1.75-2.00 percent, 23.8 percent probability that rates will be at 2.00-2.25 percent, and 2.9 percent probability that rates will be at 2.25-2.50 percent.
   
• October 2019 meeting: Market is attaching 39.1 percent probability that rates will be at 1.50-1.75 percent, 42.9 percent probability that rates will be at 1.75-2.00 percent, 16.2 percent probability that rates will be at 2.00-2.25 percent, and 1.8 percent probability that rates will be at 2.25-2.50 percent.
   
• December 2019 meeting: Market is attaching 61.9 percent probability that rates will be at 1.50-1.75 percent, 28.7 percent probability that rates will be at 1.75-2.00 percent, 8.6 percent probability that rates will be at 2.00-2.25 percent, and 0.9 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 far months, as some FOMC members hinting at rate cuts going ahead.
• The market is pricing the possibility of a rate cut with 99.1 percent probability, compared to 90.5 percent last week, and 74.3 percent in the week before that.  The market is pricing a second rate cut with 90.5 percent probability. The market is also pricing a third rate cut with 61.9 percent probability.