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Fed Hike aftermath Series: Hike probabilities over next 12 months

Hike probability sharply spiked after last FOMC meeting, where projection material showed that the U.S. Federal Reserve is still projecting one more hike for 2017, which is likely to be December. The November FOMC statement suggested that the Fed is on its path to a hike in December. President Trump has recently announced his pick for Fed Chair and it is Jerome Powell, who will be heading Fed once Yellen’s term expires in February next year.  Current FOMC rate is at 100-125 basis points. (Note, all calculations are based on data as of 4th December)

  • December 13th meeting: Market is attaching 90.2 percent probability that rates will be at 1.25-1.50 percent, and 9.8 percent probability that rates will be at 1.50-1.75 percent.
     
  • January 2018 meeting: Market is attaching 90.2 percent probability that rates will be at 1.25-1.50 percent, and 9.8 percent probability that rates will be at 1.50-1.75 percent.
     
  • March 2018 meeting: Market is attaching 34.3 percent probability that rates will be at 1.25-1.50 percent, 59.7 percent probability that rates will be at 1.50-1.75 percent, and 6.1 percent probability that rates will be at 1.75-2.00 percent.
     
  • May 2018 meeting: Market is attaching 32.2 percent probability that rates will be at 1.25-1.50 percent, 58.1 percent probability that rates will be at 1.50-1.75 percent, 9.4 percent probability that rates will be at 1.75-2.00 percent, and 0.4 percent probability that rates will be at 2.00-2.25 percent.  
     
  • June 2018 meeting: Market is attaching 15.4 percent probability that rates will be at 1.25-1.50 percent, 43.9 percent probability that rates will be at 1.50-1.75 percent, 35 percent probability that rates will be at 1.75-2.00 percent, 5.4 percent probability that rates will be at 2.00-2.25, and 0.2 percent probability that rates will be at 2.25-2.50 percent.
     
  • August 2018 meeting: Market is attaching 14.2 percent probability that rates will be at 1.25-1.50 percent, 41.7 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, 7.8 percent probability that rates will be at 2.00-2.25 percent, and 0.7 percent probability that rates will be at 2.25-2.50 percent.
     
  • September 2018 meeting: Market is attaching 8.4 percent probability that rates will be at 1.25-1.50 percent, 30.4 percent probability that rates will be at 1.50-1.75 percent, 38.1 percent probability that rates will be at 1.75-2.00 percent, 19.2 percent probability that rates will be at 2.00-2.25 percent, 3.6 percent probability that rates will be at 2.25-2.50 percent, and 0.3 percent probability that rates will be at 2.50-2.75 percent.
     
  • November 2018 meeting: Market is attaching 7.8 percent probability that rates will be at 1.25-1.50 percent, 29 percent probability that rates will be at 1.50-1.75 percent, 37.6 percent probability that rates will be at 1.75-2.00 percent, 20.4 percent probability that rates will be at 2.00-2.25 percent, 4.6 percent probability that rates will be at 2.25-2.50 percent, and 0.5 percent probability that rates will be at 2.50-2.75 percent.
     

The probability is suggesting,

  • Since our last review a week ago, the probability for the near month has remained somewhat flat. The market is attaching 90 percent probability of a rate hike in December, instead of 93 percent.
  • However, interestingly, the probability of far months have tighten. The market is now pricing the 2018 hike in March. The market is now attaching 65.7 probability to a rate hike in March, compared to just 50.1 in March.
  • In addition to that, the market is now pricing the second hike in 2018 in September compared to November just a week ago, with 61.2 percent probability.

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