Fed Hike aftermath Series: Hike probabilities over next 12 months

FOMC increased interest rates again in March and maintained its forecast for three rate hikes in 2018. FOMC also forecasted a faster pace of hikes next year than previously forecasted. March decision was unanimous. Current Federal funds rate - 150-175 bps (Note, all calculations are based on data as of 26th March)

• May 2018 meeting: Market is attaching 97.9 percent probability that rates will be at 1.50-1.75 percent, and 2.1 percent probability that rates will be at 1.75-2.00 percent.  
   
• June 2018 meeting: Market is attaching 14.7 percent probability that rates will be at 1.50-1.75 percent, 83.6 percent probability that rates will be at 1.75-2.00 percent, and 1.8 percent probability that rates will be at 2.00-2.25.
   
• August 2018 meeting: Market is attaching 14 percent probability that rates will be at 1.50-1.75 percent, 80.1 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 percent, and 0.1 percent probability that rates will be at 2.25-2.50 percent.
   
• September 2018 meeting: Market is attaching 4.7 percent probability that rates will be at 1.50-1.75 percent, 36.4 percent probability that rates will be at 1.75-2.00 percent, 54.9 percent probability that rates will be at 2.00-2.25 percent, 3.9 percent probability that rates will be at 2.25-2.50 percent, and 0.1 percent probability that rates will be at 2.50-2.75 percent.
   
• November 2018 meeting: Market is attaching 4.4 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, 53.4 percent probability that rates will be at 2.00-2.25 percent, 7.9 percent probability that rates will be at 2.25-2.50 percent, and 0.4 percent probability that rates will be at 2.50-2.75 percent.
   
• December 2018 meeting: Market is attaching 2.4 percent probability that rates will be at 1.50-1.75 percent, 20.7 percent probability that rates will be at 1.75-2.00 percent, 44.7 percent probability that rates will be at 2.00-2.25 percent, 28.3 percent probability that rates will be at 2.25-2.50 percent, 3.7 percent probability that rates will be at 2.50-2.75 percent, and 0.2 percent probability that rates will be at 2.75-3.00 percent.
   

The probability is suggesting,

• Since our last review a week ago, the probability tightened in favor of rate hikes.
• Next hike is priced in June with 85.3 percent probability, instead of 77 percent a week ago.
• The market brought forwarded the third hike for 2018 in September and pricing it with 58.9 percent probability compared to 55.9 percent a week ago.
• The market is pricing the fourth hike in December with 32.2 percent probability instead of 26.9 percent probability just a week ago.

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest