Fed Hike aftermath Series: Hike probabilities over coming meetings

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 1st October)

• November 2018 meeting: Market is attaching 99.3 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.
   
• December 2018 meeting: Market is attaching 20.6 percent probability that rates will be at 2.00-2.25 percent, 78.8 percent probability that rates will be at 2.25-2.50 percent, and 0.5 percent probability that rates will be at 2.50-2.75 percent.
   
• January 2019 meeting: Market is attaching 19.8 percent probability that rates will be at 2.00-2.25 percent, 76.4 percent probability that rates will be at 2.25-2.50 percent, and 3.9 percent probability that rates will be at 2.50-2.75 percent.
   
• March 2019 meeting: Market is attaching 8.5 percent probability that rates will be at 2.00-2.25 percent, 44.2 percent probability that rates will be at 2.25-2.50 percent, and 45.1 percent probability that rates will be at 2.50-2.75 percent, and 2.2 percent probability that rates will be at 2.75-3.00 percent.
   
• May 2019 meeting: Market is attaching 7.5 percent probability that rates will be at 2.00-2.25 percent, 39.9 percent probability that rates will be at 2.25-2.50 percent, and 45 percent probability that rates will be at 2.50-2.75 percent, and 7.6 percent probability that rates will be at 2.75-3.00 percent.
   
• June 2019 meeting: Market is attaching 4 percent probability that rates will be at 2.00-2.25 percent, 24.8 percent probability that rates will be at 2.25-2.50 percent, and 42.6 percent probability that rates will be at 2.50-2.75 percent, 24.9 percent probability that rates will be at 2.75-3.00 percent, 3.7 percent probability that rates will be at 3.00-3.25 percent.
   
• July 2019 meeting: Market is attaching 3.6 percent probability that rates will be at 2.00-2.25 percent, 22.6 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, 26.7 percent probability that rates will be at 2.75-3.00 percent, 6.3 percent probability that rates will be at 3.00-3.25 percent.
   
• September 2019 meeting: Market is attaching 2.5 percent probability that rates will be at 2.00-2.25 percent, 16.9 percent probability that rates will be at 2.25-2.50 percent, and 35.3 percent probability that rates will be at 2.50-2.75 percent, 30.9 percent probability that rates will be at 2.75-3.00 percent, 12.1 percent probability that rates will be at 3.00-3.25 percent, and 2.3 percent probability that rates will be at 3.25-3.50 percent.
   
• October 2019 meeting: Market is attaching 2.4 percent probability that rates will be at 2.00-2.25 percent, 16.2 percent probability that rates will be at 2.25-2.50 percent, and 34.3 percent probability that rates will be at 2.50-2.75 percent, 31.2 percent probability that rates will be at 2.75-3.00 percent, 13.1 percent probability that rates will be at 3.00-3.25 percent, and 2.9 percent probability that rates will be at 3.25-3.50 percent.
   

The probability is suggesting,

• Since our last review a week ago, the probabilities have eased for far months.
• The market is pricing the fourth hike in December with 80.3 percent probability compared to 87.2 percent a week ago.
• The first rate hike of 2019 is now pushed back by the market from March to June. The market is pricing the possibility of a rate hike in June next year with 71.2 percent probability.