ECB Expected to Hold Rates as Middle East Tensions Keep September Hike in Focus 
Fed Holds Interest Rates Steady as Kevin Warsh Says Rising Treasury Yields Tighten Financial Conditions 
Japan PM Sanae Takaichi Unveils Growth Plan as BOJ Independence Concerns Lift Bond Yields 
BOJ Rate Decision in Focus as Sticky Inflation, Weak Yen Shape USD/JPY and Nikkei Outlook 
Brazil Cuts Selic Rate to 14% as Inflation Eases but Risks Persist 
China Holds Loan Prime Rates Steady for 14th Month as Economic Recovery Remains Uneven 
Australia Inflation Cools as Core CPI Misses Forecasts, Easing RBA Rate Hike Pressure 
BOJ Expected to Hold Rates Steady While Signaling More Hikes Ahead 
Despite hawkish rhetoric from FOMC policy makers, the hike odds are declining fast across the meeting as the economic numbers continue to disappoint to the downside. In addition to that, some policymakers have expressed doubts over the third hike for the year. However, still, a majority of the policymakers are still hawkish on the hike outlook. In light of that, let’s take a look at the market pricing of hikes. The current interest rate is at 1.00-1.25 percent. (Note, all calculations are based on data as of 19th July)
- July 26th meeting: Market is attaching 97 percent probability that rates will be at 1.00-1.25 percent, and 3 percent probability that rates will be at 1.25-1.50 percent.
. - September 20th meeting: Market is attaching 91.6 percent probability that rates will be at 1.00-1.25 percent, 8.2 percent probability that rates will be at 1.25-1.50 percent, and 0.2 percent probability that rates will be at 1.50-1.75 percent.
- November 1st meeting: Market is attaching 89.8 percent probability that rates will be at 1.00-1.25 percent, 9.9 percent probability that rates will be at 1.25-1.50 percent, and 0.3 percent probability that rates will be at 1.50-1.75 percent.
- December 13th meeting: Market is attaching 52.7 percent probability that rates will be at 1.00-1.25 percent, 42.9 percent probability that rates will be at 1.25-1.50 percent, 4.3 percent probability that rates will be at 1.50-1.75 percent, and 0.1 percent probability that rates will be at 1.75-2.00 percent.
- January 2018 meeting: Market is attaching 50.5 percent probability that rates will be at 1.00-1.25 percent, 43.3 percent probability that rates will be at 1.25-1.50 percent, 5.9 percent probability that rates will be at 1.50-1.75 percent, and 0.3 percent probability that rates will be at 1.75-2.00 percent.
- March 2018 meeting: Market is attaching 39.1 percent probability that rates will be at 1.00-1.25 percent, 44.9 percent probability that rates will be at 1.25-1.50 percent, 14.3 percent probability that rates will be at 1.50-1.75 percent, and 1.7 percent probability that rates will be at 1.75-2.00 percent.
- May 2018 meeting: Market is attaching 37.5 percent probability that rates will be at 1.00-1.25 percent, 44.7 percent probability that rates will be at 1.25-1.50 percent, 15.6 percent probability that rates will be at 1.50-1.75 percent, 2.1 percent probability that rates will be at 1.75-2.00 percent, and 0.1 percent probability that rates will be at 2.00-2.25 percent.
- June 2018 meeting: Market is attaching 30 percent probability that rates will be at 1.00-1.25 percent, 43.3 percent probability that rates will be at 1.25-1.50 percent, 21.4 percent probability that rates will be at 1.50-1.75 percent, 4.8 percent probability that rates will be at 1.75-2.00 percent, and 0.5 percent probability that rates will be at 2.00-2.25 percent.
The probability is suggesting,
- There has been a lot of changes since our last review a week ago. Hike odds have diminished by 5-7percentage points across the board.
- The financial market is no longer pricing the third hike in December. Instead, the next hike is priced in March 2018 with 61 percent probability.
- We are currently expecting the third rate hike in December and the beginning of balance sheet trimming in September.
