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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 suggests 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 6th November)

  • December 13th meeting: Market is attaching 96.7 percent probability that rates will be at 1.25-1.50 percent, and 3.3 percent probability that rates will be at 1.50-1.75 percent.
     
  • January 2018 meeting: Market is attaching 96.2 percent probability that rates will be at 1.25-1.50 percent, and 3.8 percent probability that rates will be at 1.50-1.75 percent.
     
  • March 2018 meeting: Market is attaching 58.2 percent probability that rates will be at 1.25-1.50 percent, 40.2 percent probability that rates will be at 1.50-1.75 percent, and 1.5 percent probability that rates will be at 1.75-2.00 percent.
     
  • May 2018 meeting: Market is attaching 53.8 percent probability that rates will be at 1.25-1.50 percent, 41.6 percent probability that rates will be at 1.50-1.75 percent, 4.5 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 35.5 percent probability that rates will be at 1.25-1.50 percent, 46 percent probability that rates will be at 1.50-1.75 percent, 17 percent probability that rates will be at 1.75-2.00 percent, and 1.4 percent probability that rates will be at 2.00-2.25 percent.
     
  • August 2018 meeting: Market is attaching 33.4 percent probability that rates will be at 1.25-1.50 percent, 45.4 percent probability that rates will be at 1.50-1.75 percent, 18.8 percent probability that rates will be at 1.75-2.00 percent, 2.4 percent probability that rates will be at 2.00-2.25 percent, and 0.1 percent probability that rates will be at 2.00-2.25 percent.
     
  • September 2018 meeting: Market is attaching 24.2 percent probability that rates will be at 1.25-1.50 percent, 42.1 percent probability that rates will be at 1.50-1.75 percent, 26.1 percent probability that rates will be at 1.75-2.00 percent, 6.9 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.
     

The probability is suggesting,

  • Hike odds have increased further, especially for the 2018 months. The market is now more than 96 percent confident of a hike in December.
  • The market is pricing the next hike in June 2018 with 64.5 percent probability, which 3 percent higher compared to our last review on 30th October.

 

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