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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 24th June)
- July 2019 meeting: Market is attaching 67.7 percent probability that rates will be at 2.00-2.25 percent, and 32.3 percent probability that rates will be at 2.25-2.50 percent.
- September 2019 meeting: Market is attaching 23.8 percent probability that rates will be at 1.50-1.75 percent, 58.5 percent probability that rates will be at 1.75-2.00 percent, and 17.7 percent probability that rates will be at 2.25-2.50 percent.
- October 2019 meeting: Market is attaching 9.7 percent probability that rates will be at 1.25-1.50 percent, 37.9 percent probability that rates will be at 1.50-1.75 percent, 41.9 percent probability that rates will be at 1.75-2.00 percent, and 10.3 percent probability that rates will be at 2.00-2.25 percent.
- December 2019 meeting: Market is attaching 25.3 percent probability that rates will be at 1.25-1.50 percent, 39.6 percent probability that rates will be at 1.50-1.75 percent, 28.9 percent probability that rates will be at 1.75-2.00 percent, and 6.2 percent probability that rates will be at 2.00-2.25 percent.
The probability is suggesting,
- Since our last review a week ago, the probabilities have eased significantly with Federal Reserve forecasting rate cuts going ahead.
- The market is pricing the possibility of a rate cut with 100 percent probability, compared to 98.7 percent last week, and 99.1 percent in the week before that.
- The market is pricing a second rate cut with 93.8 percent probability, compared to 87.2 percent a week ago.
- The market is also pricing a third rate cut in 2019 with a 65 percent probability, compared to 54 percent a week ago.
