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FOMC increased interest rates in March and June and increased its forecast from three rate hikes in 2018 to four rate hikes. June decision was unanimous. Current Federal funds rate - 175-200 bps (Note, all calculations are based on data as of 6th August)
- September 2018 meeting: Market is attaching 6.4 percent probability that rates will be at 1.75-2.00 percent, and 93.6 percent probability that rates will be at 2.00-2.25 percent.
- November 2018 meeting: Market is attaching 6.2 percent probability that rates will be at 1.75-2.00 percent, 91.3 percent probability that rates will be at 2.00-2.25 percent, and 2.4 percent probability that rates will be at 2.25-2.50 percent.
- December 2018 meeting: Market is attaching 1.7 percent probability that rates will be at 1.75-2.00 percent, 29.8 percent probability that rates will be at 2.00-2.25 percent, 66.7 percent probability that rates will be at 2.25-2.50 percent, and 1.8 percent probability that rates will be at 2.50-2.75 percent.
- January 2019 meeting: Market is attaching 1.6 percent probability that rates will be at 1.75-2.00 percent, 27.4 percent probability that rates will be at 2.00-2.25 percent, 63.6 percent probability that rates will be at 2.25-2.50 percent, and 7.3 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.
- March 2019 meeting: Market is attaching 0.8 percent probability that rates will be at 1.75-2.00 percent, 14.7 percent probability that rates will be at 2.00-2.25 percent, 45.8 percent probability that rates will be at 2.25-2.50 percent, and 34.9 percent probability that rates will be at 2.50-2.75 percent, and 3.8 percent probability that rates will be at 2.75-3.00 percent.
- April 2019 meeting: Market is attaching 0.7 percent probability that rates will be at 1.75-2.00 percent, 13.3 percent probability that rates will be at 2.00-2.25 percent, 42.6 percent probability that rates will be at 2.25-2.50 percent, and 36.1 percent probability that rates will be at 2.50-2.75 percent, and 7.3 percent probability that rates will be at 2.75-3.00 percent.
- June 2019 meeting: Market is attaching 0.4 percent probability that rates will be at 1.75-2.00 percent, 8.6 percent probability that rates will be at 2.00-2.25 percent, 31.6 percent probability that rates will be at 2.25-2.50 percent, and 38.5 percent probability that rates will be at 2.50-2.75 percent, 17.8 percent probability that rates will be at 2.75-3.00 percent, 2.9 percent probability that rates will be at 3.00-3.25 percent, and 0.2 percent probability that rates will be at 3.00-3.25 percent.
The probability is suggesting,
- Since our last review a week ago, the probabilities have eased marginally for near and far months.
- The market is pricing the third hike for 2018 in September and pricing it with 93.6 percent probability compared to 97.6 percent a week ago.
- The market is pricing the fourth hike in December with 68.5 percent probability instead of 68.6 percent probability just a week ago.
- The first rate hike of 2019 is priced in June with 59.4 percent probability.
