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Fed Hike aftermath Series: Hike probabilities over coming meetings

FOMC increased interest rates in March and maintained its forecast for three rate hikes in 2018. FOMC also forecasted a faster pace of hikes next year than previously forecasted. March decision was unanimous. Current Federal funds rate - 150-175 bps (Note, all calculations are based on data as of 14th May)

  • June 2018 meeting: Market is attaching 7.5 percent probability that rates will be at 1.50-1.75 percent, and 92.5 percent probability that rates will be at 1.75-2.00 percent.
     
  • August 2018 meeting: Market is attaching 7.2 percent probability that rates will be at 1.50-1.75 percent, 89.1 percent probability that rates will be at 1.75-2.00 percent, and 3.7 percent probability that rates will be at 2.00-2.25 percent.
     
  • September 2018 meeting: Market is attaching 2.5 percent probability that rates will be at 1.50-1.75 percent, 36 percent probability that rates will be at 1.75-2.00 percent, 59 percent probability that rates will be at 2.00-2.25 percent, and 2.4 percent probability that rates will be at 2.25-2.50 percent.
     
  • November 2018 meeting: Market is attaching 2.3 percent probability that rates will be at 1.50-1.75 percent, 33.4 percent probability that rates will be at 1.75-2.00 percent, 57.2 percent probability that rates will be at 2.00-2.25 percent, 6.8 percent probability that rates will be at 2.25-2.50 percent, and 0.2 percent probability that rates will be at 2.50-2.75 percent.
     
  • December 2018 meeting: Market is attaching 1 percent probability that rates will be at 1.50-1.75 percent, 16.3 percent probability that rates will be at 1.75-2.00 percent, 44.1 percent probability that rates will be at 2.00-2.25 percent, 34.6 percent probability that rates will be at 2.25-2.50 percent, and 3.8 percent probability that rates will be at 2.50-2.75 percent, and 0.1 percent probability that rates will be at 2.75-3.00 percent.
     
  • January 2019 meeting: Market is attaching 1 percent probability that rates will be at 1.50-1.75 percent, 15.3 percent probability that rates will be at 1.75-2.00 percent, 42.3 percent probability that rates will be at 2.00-2.25 percent, 35.2 percent probability that rates will be at 2.25-2.50 percent, and 5.8 percent probability that rates will be at 2.50-2.75 percent, and 0.3 percent probability that rates will be at 2.75-3.00 percent.
     

The probability is suggesting,

  • Since our last review a week ago, the probability has eased for both near month and far months.
  • Next hike is priced in June with 92.5 percent probability, instead of 95 percent a week ago.
  • The market brought forwarded the third hike for 2018 in September and pricing it with 61.4 percent probability compared to 83.3 percent a week ago.
  • The market is pricing the fourth hike in December with 38.5 percent probability instead of 53 percent probability just a week ago.

 

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By Saanando Das
  • Market Data
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