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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 8th July)

  • July 2019 meeting: Market is attaching 8 percent probability that rates will be at 1.75-2.00 percent, and 92 percent probability that rates will be at 2.00-2.25 percent.
     
  • September 2019 meeting: Market is attaching 5.5 percent probability that rates will be at 1.50-1.75 percent, 66.2 percent probability that rates will be at 1.75-2.00 percent, and 28.3 percent probability that rates will be at 2.25-2.50 percent.
     
  • October 2019 meeting: Market is attaching 1.9 percent probability that rates will be at 1.25-1.50 percent, 26.3 percent probability that rates will be at 1.50-1.75 percent, 53.2 percent probability that rates will be at 1.75-2.00 percent, and 18.6 percent probability that rates will be at 2.00-2.25 percent.
     
  • December 2019 meeting: Market is attaching 12.4 percent probability that rates will be at 1.25-1.50 percent, 37 percent probability that rates will be at 1.50-1.75 percent, 39.4 percent probability that rates will be at 1.75-2.00 percent, and 11.2 percent probability that rates will be at 2.00-2.25 percent.
     

The probability is suggesting,

  • Since our last review a week ago, the probabilities have tightened on the back of stronger economic numbers from the United States.
  • The market is pricing the possibility of a rate cut with 100 percent probability, compared to 100 percent last week.  
  • The market is pricing a second rate cut with 88.8 percent probability, compared to 90.3 percent a week ago, and 93.8 percent in the week before that.
  • The market is also pricing a third rate cut in 2019 with 49.4 percent probability, compared to 53.6 percent a week ago, and 65 percent in the week before that.
  • The first rate cut is priced in July 2019 with 100 percent probability. The second rate cut is priced in September with 71.7 percent probability. 
By Saanando Das
  • Market Data
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