Fed Hike aftermath Series: Hike probabilities over coming meetings

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 14th May)

• June 2018 meeting: Market is attaching 8.7 percent probability that rates will be at 1.50-1.75 percent, and 91.3 percent probability that rates will be at 1.75-2.00 percent.
   
• August 2018 meeting: Market is attaching 8.6 percent probability that rates will be at 1.50-1.75 percent, 89.6 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 percent.
   
• September 2018 meeting: Market is attaching 2.2 percent probability that rates will be at 1.50-1.75 percent, 29.3 percent probability that rates will be at 1.75-2.00 percent, 67.1 percent probability that rates will be at 2.00-2.25 percent, and 1.4 percent probability that rates will be at 2.25-2.50 percent.
   
• November 2018 meeting: Market is attaching 2 percent probability that rates will be at 1.50-1.75 percent, 27.2 percent probability that rates will be at 1.75-2.00 percent, 64.2 percent probability that rates will be at 2.00-2.25 percent, 6.5 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.
   
• December 2018 meeting: Market is attaching 1.1 percent probability that rates will be at 1.50-1.75 percent, 15.5 percent probability that rates will be at 1.75-2.00 percent, 47 percent probability that rates will be at 2.00-2.25 percent, 33.3 percent probability that rates will be at 2.25-2.50 percent, and 3.1 percent probability that rates will be at 2.50-2.75 percent.
   
• January 2019 meeting: Market is attaching 1 percent probability that rates will be at 1.50-1.75 percent, 14.4 percent probability that rates will be at 1.75-2.00 percent, 44.6 percent probability that rates will be at 2.00-2.25 percent, 34.3 percent probability that rates will be at 2.25-2.50 percent, and 5.3 percent probability that rates will be at 2.50-2.75 percent, and 0.3 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 eased for both near month and far month but tightened for mid-month.
• Next hike is priced in June with 91.3 percent probability, instead of 92.5 percent a week ago.
• The market brought forwarded the third hike for 2018 in September and pricing it with 68.5 percent probability compared to 61.5 percent a week ago.
• The market is pricing the fourth hike in December with 36.4 percent probability instead of 38.5percent probability just a week ago.

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