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FOMC increased interest rates in March and June and increased its forecast from three rate hikes in 2018 to four rate hikes. June decision was unanimous. Current Federal funds rate - 175-200 bps (Note, all calculations are based on data as of 17th September)
- September 2018 meeting: Market is attaching 94.4 percent probability that rates will be at 2.00-2.25 percent, and 5.6 percent probability that rates will be at 2.25-2.50 percent.
- November 2018 meeting: Market is attaching 94.4 percent probability that rates will be at 2.00-2.25 percent, and 5.6 percent probability that rates will be at 2.25-2.50 percent.
- December 2018 meeting: Market is attaching 19.6 percent probability that rates will be at 2.00-2.25 percent, 75.9 percent probability that rates will be at 2.25-2.50 percent, and 4.4 percent probability that rates will be at 2.50-2.75 percent.
- January 2019 meeting: Market is attaching 17.9 percent probability that rates will be at 2.00-2.25 percent, 71.1 percent probability that rates will be at 2.25-2.50 percent, and 11 percent probability that rates will be at 2.50-2.75 percent.
- March 2019 meeting: Market is attaching 8.7 percent probability that rates will be at 2.00-2.25 percent, 43.6 percent probability that rates will be at 2.25-2.50 percent, and 41.9 percent probability that rates will be at 2.50-2.75 percent, and 5.8 percent probability that rates will be at 2.75-3.00 percent.
- May 2019 meeting: Market is attaching 7.6 percent probability that rates will be at 2.00-2.25 percent, 39.5 percent probability that rates will be at 2.25-2.50 percent, and 42.1 percent probability that rates will be at 2.50-2.75 percent, and 10.8 percent probability that rates will be at 2.75-3.00 percent.
- June 2019 meeting: Market is attaching 4.1 percent probability that rates will be at 2.00-2.25 percent, 24.6 percent probability that rates will be at 2.25-2.50 percent, and 40.8 percent probability that rates will be at 2.50-2.75 percent, 25 percent probability that rates will be at 2.75-3.00 percent, 5.5 percent probability that rates will be at 3.00-3.25 percent.
The probability is suggesting,
- Since our last review a week ago, the probabilities have tightened.
- The market is pricing the third hike for 2018 in September and pricing it with 100 percent probability, higher than 98.4 percent last week ago.
- The market is pricing the fourth hike in December with 80.3 percent probability compared to 79.1 percent a week ago.
- The first rate hike of 2019 is priced in June with 71.3 percent probability, instead of 67.8 percent probability just a week ago.
