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The US Federal Reserve maintained the current policy rate at yesterday’s meeting, however, the statement was far more hawkish than expected. FOMC shrugged off the weakness in Growth in the first quarter as transitory. Let’s review the probabilities of hikes in 2017 after FOMC. The current interest rate is at 0.75-1.00 percent. (Note, all calculations are based on data as of 2nd May)
- June 14th Meeting: Market is attaching 26 percent probability that rates will be at 0.75-1.00 percent, and 74 percent probability that rates will be at 1.00-1.25 percent.
- July 26th meeting: Market is attaching 24 percent probability that rates will be at 0.75-1.00 percent, 69 percent probability that rates will be at 1.00-1.25 percent, and 7 percent probability that rates will be at 1.25-1.50 percent.
. - September 20th meeting: Market is attaching 14 percent probability that rates will be at 0.75-1.00 percent, 52 percent probability that rates will be at 1.00-1.25 percent, 31 percent probability that rates will be at 1.25-1.50 percent, and 3 percent probability that rates will be at 1.50-1.75 percent.
- November 1st meeting: Market is attaching 14 percent probability that rates will be at 0.75-1.00 percent, 51 percent probability that rates will be at 1.00-1.25 percent, 31 percent probability that rates will be at 1.25-1.50 percent, 3.5 percent probability that rates will be at 1.50-1.75 percent, and 0.5 percent probability that rates will be at 1.75-2.00 percent.
- December 13th meeting: Market is attaching 9 percent probability that rates will be at 0.75-1.00 percent, 37 percent probability that rates will be at 1.00-1.25 percent, 39 percent probability that rates will be at 1.25-1.50 percent, 14 percent probability that rates will be at 1.50-1.75 percent, and 1 percent probability that rates will be at 1.75-2.00 percent.
The probability is suggesting,
- After last night’s hawkish bias in the FOMC statement, the probabilities for rate hikes increased. Major changes were observed in the case of June and the July meetings.
- However, there were no fundamentals changes of the number of hikes expected nor there was a change in terms of the timing/month/meeting.
- The probability is still suggesting two more hikes in 2017; one in June and the final one at the December meeting.
