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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 1st July)
- July 2019 meeting: Market is attaching 21.4 percent probability that rates will be at 1.75-2.00 percent, and 78.6 percent probability that rates will be at 2.00-2.25 percent.
- September 2019 meeting: Market is attaching 12.9 percent probability that rates will be at 1.50-1.75 percent, 60.4 percent probability that rates will be at 1.75-2.00 percent, and 26.7 percent probability that rates will be at 2.25-2.50 percent.
- October 2019 meeting: Market is attaching 5.1 percent probability that rates will be at 1.25-1.50 percent, 30.6 percent probability that rates will be at 1.50-1.75 percent, 48.4 percent probability that rates will be at 1.75-2.00 percent, and 15.9 percent probability that rates will be at 2.00-2.25 percent.
- December 2019 meeting: Market is attaching 15 percent probability that rates will be at 1.25-1.50 percent, 36.9 percent probability that rates will be at 1.50-1.75 percent, 35.7 percent probability that rates will be at 1.75-2.00 percent, and 10.7 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 to some extent as U.S. China to resume negotiations after a successful G20 meeting between President Trump and President Xi Jinping.
- The market is pricing the possibility of a rate cut with 100 percent probability, compared to 100 percent last week, and 98.7 percent in the week before that.
- The market is pricing a second rate cut with 90.3 percent probability, compared to 93.8 percent a week ago, and 87.2 percent in the week before that.
- The market is also pricing a third rate cut in 2019 with 53.6 percent probability, compared to 65 percent a week ago.
- The first rate is priced in July 2019 with 100 percent probability. The second rate cut is priced in September with 82.2 percent probability.
