Fed Hike aftermath Series: Hike probabilities over next 12 months

Hike probability sharply spiked after last FOMC meeting, where projection material showed that the U.S. Federal Reserve is still projecting one more hike for 2017, which is likely to be December. The November FOMC statement suggested that the Fed is on its path to a hike in December. President Trump has recently announced his pick for Fed Chair and it is Jerome Powell, who will be heading Fed once Yellen’s term expires in February next year.  Current FOMC rate is at 100-125 basis points. (Note, all calculations are based on data as of 4th December)

• December 13th meeting: Market is attaching 90.2 percent probability that rates will be at 1.25-1.50 percent, and 9.8 percent probability that rates will be at 1.50-1.75 percent.
   
• January 2018 meeting: Market is attaching 88.3 percent probability that rates will be at 1.25-1.50 percent, and 11.7 percent probability that rates will be at 1.50-1.75 percent.
   
• March 2018 meeting: Market is attaching 38.6 percent probability that rates will be at 1.25-1.50 percent, 54.8 percent probability that rates will be at 1.50-1.75 percent, and 6.6 percent probability that rates will be at 1.75-2.00 percent.
   
• May 2018 meeting: Market is attaching 35.8 percent probability that rates will be at 1.25-1.50 percent, 53.6 percent probability that rates will be at 1.50-1.75 percent, 10 percent probability that rates will be at 1.75-2.00 percent, and 0.6 percent probability that rates will be at 2.00-2.25 percent.  
   
• June 2018 meeting: Market is attaching 16.1 percent probability that rates will be at 1.25-1.50 percent, 43.8 percent probability that rates will be at 1.50-1.75 percent, 34 percent probability that rates will be at 1.75-2.00 percent, 5.8 percent probability that rates will be at 2.00-2.25, and 0.3 percent probability that rates will be at 2.25-2.50 percent.
   
• August 2018 meeting: Market is attaching 15 percent probability that rates will be at 1.25-1.50 percent, 41.9 percent probability that rates will be at 1.50-1.75 percent, 34.7 percent probability that rates will be at 1.75-2.00 percent, 7.8 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.
   
• September 2018 meeting: Market is attaching 9.2 percent probability that rates will be at 1.25-1.50 percent, 31.5 percent probability that rates will be at 1.50-1.75 percent, 37.4 percent probability that rates will be at 1.75-2.00 percent, 18.1 percent probability that rates will be at 2.00-2.25 percent, 3.4 percent probability that rates will be at 2.25-2.50 percent, and 0.3 percent probability that rates will be at 2.50-2.75 percent.
   
• November 2018 meeting: Market is attaching 8.6 percent probability that rates will be at 1.25-1.50 percent, 30.1 percent probability that rates will be at 1.50-1.75 percent, 37.1 percent probability that rates will be at 1.75-2.00 percent, 19.4 percent probability that rates will be at 2.00-2.25 percent, 4.4 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.
   

The probability is suggesting,

• Since our last review a week ago, the probability for rate hikes has somewhat eased, however, the market is still pricing a December hike with more than 90 percent probability. Next hike is priced in March with 61.4 percent probability.
• In addition to that, the market is now pricing the second hike of 2018 in September with 59.3 percent probability compared to 61.2 percent probability, a week ago.

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