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FOMC increased interest rates 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 16th April)
- June 2018 meeting: Market is attaching 95 percent probability that rates will be at 1.75-2.00 percent, and 5 percent probability that rates will be at 2.00-2.25.
- August 2018 meeting: Market is attaching 89.3 percent probability that rates will be at 1.75-2.00 percent, and 10.7 percent probability that rates will be at 2.00-2.25 percent.
- September 2018 meeting: Market is attaching 25 percent probability that rates will be at 1.75-2.00 percent, 67.2 percent probability that rates will be at 2.00-2.25 percent, and 7.8 percent probability that rates will be at 2.25-2.50 percent.
- November 2018 meeting: Market is attaching 22.7 percent probability that rates will be at 1.75-2.00 percent, 63.4 percent probability that rates will be at 2.00-2.25 percent, 13 percent probability that rates will be at 2.25-2.50 percent, and 0.9 percent probability that rates will be at 2.50-2.75 percent.
- December 2018 meeting: Market is attaching 11.4 percent probability that rates will be at 1.75-2.00 percent, 43.1 percent probability that rates will be at 2.00-2.25 percent, 38.2 percent probability that rates will be at 2.25-2.50 percent, 6.9 percent probability that rates will be at 2.50-2.75 percent, and 0.5 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 has tightened for near month and eased for far months.
- Next hike is priced in June with 95 percent probability, instead of 93.8 percent a week ago.
- The market brought forwarded the third hike for 2018 in September and pricing it with 70 percent probability compared to 76.9 percent a week ago.
- The market is pricing the fourth hike in December with 45.6 percent probability instead of 48 percent probability just a week ago.
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