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Fed Hike aftermath Series: Hike probabilities over coming meetings

FOMC followed through its promise and hiked rates four times in 2018 and forecasted two more rate hikes for 2019. Current Federal funds rate - 225-250 bps (Note, all calculations are based on data as of 7th January)

  • January 2019 meeting: Market is attaching 0.5 percent probability that rates will be at 2.00-2.25 percent, and 99.5 percent probability that rates will be at 2.25-2.50 percent.
     
  • March 2019 meeting: Market is attaching 5.6 percent probability that rates will be at 2.00-2.25 percent, and 94.3 percent probability that rates will be at 2.25-2.50 percent.
     
  • May 2019 meeting: Market is attaching 5.5 percent probability that rates will be at 2.00-2.25 percent, 92.6 percent probability that rates will be at 2.25-2.50 percent, and 1.9 percent probability that rates will be at 2.50-2.75 percent.
     
  • June 2019 meeting: Market is attaching 5.3 percent probability that rates will be at 2.00-2.25 percent, 89 percent probability that rates will be at 2.25-2.50 percent, and 5.6 percent probability that rates will be at 2.50-2.75 percent.
     
  • July 2019 meeting: Market is attaching 9.9 percent probability that rates will be at 2.00-2.25 percent, 84.7 percent probability that rates will be at 2.25-2.50 percent, and 5.3 percent probability that rates will be at 2.50-2.75 percent.
     
  • September 2019 meeting: Market is attaching 11.9 percent probability that rates will be at 2.00-2.25 percent, 82.9 percent probability that rates will be at 2.25-2.50 percent, and 5.2 percent probability that rates will be at 2.50-2.75 percent.
     
  • October 2019 meeting: Market is attaching 17.3 percent probability that rates will be at 2.00-2.25 percent, 78.5 percent probability that rates will be at 2.25-2.50 percent, and 4.1 percent probability that rates will be at 2.50-2.75 percent.
     
  • December 2019 meeting: Market is attaching 3 percent probability that rates will be at 1.75-2.00 percent, 22.6 percent probability that rates will be at 2.00-2.25 percent, and 70.8 percent probability that rates will be at 2.25-2.50 percent, and 3.7 percent probability that rates will be at 2.50-2.75 percent.
     

The probability is suggesting,

  • Since our last review a week ago, the probabilities have eased further, despite two more hike forecasts by the Fed.
  • The market is just pricing one rate hike for 2019 with 3.7 percent probability, compared to a8 percent a week ago and 48.3 percent in the week before that, which means that the market is pricing no rate hike in 2019, despite Fed’s forecast of two hikes.
  • The market is now pricing a rate cut in 2019 with 25.6 percent probability.
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