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 17th June)

• June 2019 meeting: Market is attaching 15.8 percent probability that rates will be at 2.00-2.25 percent, and 84.2 percent probability that rates will be at 2.25-2.50 percent.
   
• July 2019 meeting: Market is attaching 12.8 percent probability that rates will be at 1.75-2.00 percent, 70.9 percent probability that rates will be at 2.00-2.25 percent, and 16.3 percent probability that rates will be at 2.25-2.50 percent.
   
• September 2019 meeting: Market is attaching 9.4 percent probability that rates will be at 1.50-1.75 percent, 55.7 percent probability that rates will be at 1.75-2.00 percent, 30.6 percent probability that rates will be at 2.00-2.25 percent, and 4.3 percent probability that rates will be at 2.25-2.50 percent.
   
• October 2019 meeting: Market is attaching 29 percent probability that rates will be at 1.50-1.75 percent, 46.8 percent probability that rates will be at 1.75-2.00 percent, 21.3 percent probability that rates will be at 2.00-2.25 percent, and 2.8 percent probability that rates will be at 2.25-2.50 percent.
   
• December 2019 meeting: Market is attaching 51.9 percent probability that rates will be at 1.50-1.75 percent, 33.3 percent probability that rates will be at 1.75-2.00 percent, 11.5 percent probability that rates will be at 2.00-2.25 percent, and 1.3 percent probability that rates will be at 2.25-2.50 percent.
   

The probability is suggesting,

• Since our last review a week ago, the probabilities have tightened for both the near month and the far months, on the back of stronger retail sales data.
• The market is pricing the possibility of a rate cut with 98.7 percent probability, compared to 99.1 percent last week, and 90.5 percent in the week before that.  The market is pricing a second rate cut with 87.2 percent probability, compared to 90.5 percent a week ago. The market is also pricing a third rate cut with 53.9 percent probability, compared to 61.9 percent a week ago.