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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 22nd July)
- July 2019 meeting: Market is attaching 22.5 percent probability that rates will be at 1.75-2.00 percent, and 77.5 percent probability that rates will be at 2.00-2.25 percent.
- September 2019 meeting: Market is attaching 15 percent probability that rates will be at 1.50-1.75 percent, 59.3 percent probability that rates will be at 1.75-2.00 percent, and 25.7 percent probability that rates will be at 2.25-2.50 percent.
- October 2019 meeting: Market is attaching 7.5 percent probability that rates will be at 1.25-1.50 percent, 37.3 percent probability that rates will be at 1.50-1.75 percent, 42.4 percent probability that rates will be at 1.75-2.00 percent, and 12.8 percent probability that rates will be at 2.00-2.25 percent.
- December 2019 meeting: Market is attaching 21.9 percent probability that rates will be at 1.25-1.50 percent, 39.2 percent probability that rates will be at 1.50-1.75 percent, 31 percent probability that rates will be at 1.75-2.00 percent, and 7.9 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 eased on the back of Fed speakers signaling rate cuts.
- 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 92.1 percent probability, compared to 89.6 percent a week ago, and 88.8 percent in the week before that.
- The market is also pricing a third rate cut in 2019 with 53.5 percent probability, compared to 49.4 percent a week ago, and 61.1 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 October with 87.2 percent probability.
