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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. Before the meeting, the market was pricing no more hikes until the first half of 2018. Speaking over the weekend, Fed Chair Janet Yellen defended central bank’s monetary policy stance and bond buying which according to her averted further deepening of the financial crisis. Let’s take a look at the market pricing of hikes over the next 12 months. Current FOMC rate is at 100-125 basis points. (Note, all calculations are based on data as of 23rd October)

  • November 1st meeting: Market is attaching 99 percent probability that rates will be at 1.00-1.25 percent, and 1 percent probability that rates will be at 1.25-1.50 percent.
  • December 13th meeting: Market is attaching 95.7 percent probability that rates will be at 1.25-1.50 percent, and 4.3 percent probability that rates will be at 1.50-1.75 percent.
  • January 2018 meeting: Market is attaching 91.7 percent probability that rates will be at 1.25-1.50 percent, 8 percent probability that rates will be at 1.50-1.75 percent, and 0.2 percent probability that rates will be at 1.75-2.00 percent.
  • March 2018 meeting: Market is attaching 60.7 percent probability that rates will be at 1.25-1.50 percent, 36.4 percent probability that rates will be at 1.50-1.75 percent, 2.9 percent probability that rates will be at 1.75-2.00 percent, and 0.1 percent probability that rates will be at 2.00-2.25 percent.
  • May 2018 meeting: Market is attaching 57 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, 4.9 percent probability that rates will be at 1.75-2.00 percent, and 0.2 percent probability that rates will be at 2.00-2.25 percent.
  • June 2018 meeting: Market is attaching 38.4 percent probability that rates will be at 1.25-1.50 percent, 44.1 percent probability that rates will be at 1.50-1.75 percent, 15.6 percent probability that rates will be at 1.75-2.00 percent, 1.8 percent probability that rates will be at 2.00-2.25 percent, and 0.1 percent probability that rates will be at 2.25-2.50 percent.
  • August 2018 meeting: Market is attaching 35.2 percent probability that rates will be at 1.25-1.50 percent, 44.2 percent probability that rates will be at 1.50-1.75 percent, 17.9 percent probability that rates will be at 1.75-2.00 percent, 2.6 percent probability that rates will be at 2.00-2.25 percent, and 0.2 percent probability that rates will be at 2.00-2.25 percent.
  • September 2018 meeting: Market is attaching 24.6 percent probability that rates will be at 1.25-1.50 percent, 41.5 percent probability that rates will be at 1.50-1.75 percent, 25.8 percent probability that rates will be at 1.75-2.00 percent, 7.2 percent probability that rates will be at 2.00-2.25 percent, 0.9 percent probability that rates will be at 2.25-2.50 percent, and 0.1 percent that rates will be at 2.50-2.75 percent.

The probability is suggesting,

  • Hike odds have increased further, especially for the nearer months. The market is now 100 percent confident of a hike in December.
  • The market is pricing the next hike in June 2018 with 61.5 percent probability, which 0.9 percent lower compared to our last review on 23rd.

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