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In recent times, several Fed policymakers have either toned down their hawkish expectations or turned dovish. In light of that, let’s take a look at the market pricing of hikes. The current interest rate is at 0.75-1.00 percent. (Note, all calculations are based on data as of 1st June)
- June 14th Meeting: Market is attaching 9 percent probability that rates will be at 0.75-1.00 percent, and 91 percent probability that rates will be at 1.00-1.25 percent.
- July 26th meeting: Market is attaching 8 percent probability that rates will be at 0.75-1.00 percent, 87 percent probability that rates will be at 1.00-1.25 percent, and 5 percent probability that rates will be at 1.25-1.50 percent.
. - September 20th meeting: Market is attaching 6 percent probability that rates will be at 0.75-1.00 percent, 66 percent probability that rates will be at 1.00-1.25 percent, 27 percent probability that rates will be at 1.25-1.50 percent, and 1 percent probability that rates will be at 1.50-1.75 percent.
- November 1st meeting: Market is attaching 6 percent probability that rates will be at 0.75-1.00 percent, 64 percent probability that rates will be at 1.00-1.25 percent, 28 percent probability that rates will be at 1.25-1.50 percent, and 2 percent probability that rates will be at 1.50-1.75 percent.
- December 13th meeting: Market is attaching 4.1 percent probability that rates will be at 0.75-1.00 percent, 46 percent probability that rates will be at 1.00-1.25 percent, 39.2 percent probability that rates will be at 1.25-1.50 percent, 10.1 percent probability that rates will be at 1.50-1.75 percent, and 0.6 percent probability that rates will be at 1.75-2.00 percent.
The probability is suggesting,
- Despite some of the dovish-toned remarks from the Federal Reserve officials, the financial market is almost certain of a rate hike in June.
- Compared to our last month’s review, the hike probabilities have increased by 10-20 percent on an average. However, the financial markets are still not pricing a third rate hike for 2017.
- A rate hike probability for December increased from 46.1 percent a week ago to 49.9 percent as of today.
