Fed Hike aftermath Series: Hike probabilities over coming meetings

FOMC increased interest rates in March, June and in September. Increased its forecast from three rate hikes in 2018 to four rate hikes. September decision was unanimous. Current Federal funds rate - 200-225 bps (Note, all calculations are based on data as of 16th December)

• December 2018 meeting: Market is attaching 25.1 percent probability that rates will be at 2.00-2.25 percent, and, 74.9 percent probability that rates will be at 2.25-2.50 percent.
   
• January 2019 meeting: Market is attaching 21.5 percent probability that rates will be at 2.00-2.25 percent, 75.1 percent probability that rates will be at 2.25-2.50 percent, and 3.3 percent probability that rates will be at 2.50-2.75 percent.
   
• March 2019 meeting: Market is attaching 13.7 percent probability that rates will be at 2.00-2.25 percent, 55.8 percent probability that rates will be at 2.25-2.50 percent, and 29.3 percent probability that rates will be at 2.50-2.75 percent, and 1.2 percent probability that rates will be at 2.75-3.00 percent.
   
• May 2019 meeting: Market is attaching 12.5 percent probability that rates will be at 2.00-2.25 percent, 52 percent probability that rates will be at 2.25-2.50 percent, and 31.7 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.
   
• June 2019 meeting: Market is attaching 9.6 percent probability that rates will be at 2.00-2.25 percent, 42.8 percent probability that rates will be at 2.25-2.50 percent, and 36.4 percent probability that rates will be at 2.50-2.75 percent, 10.2 percent probability that rates will be at 2.75-3.00 percent, 1 percent probability that rates will be at 3.00-3.25 percent.
   
• July 2019 meeting: Market is attaching 8.8 percent probability that rates will be at 2.00-2.25 percent, 40 percent probability that rates will be at 2.25-2.50 percent, and 36.9 percent probability that rates will be at 2.50-2.75 percent, 12.4 percent probability that rates will be at 2.75-3.00 percent, 1.7 percent probability that rates will be at 3.00-3.25 percent, and 0.1 percent probability that rates will be at 3.25-3.50 percent.
   
• September 2019 meeting: Market is attaching 7.8 percent probability that rates will be at 2.00-2.25 percent, 36.4 percent probability that rates will be at 2.25-2.50 percent, and 37.3 percent probability that rates will be at 2.50-2.75 percent, 15.2 percent probability that rates will be at 2.75-3.00 percent, 3 percent probability that rates will be at 3.00-3.25 percent, and 0.3 percent probability that rates will be at 3.25-3.50 percent.
   
• October 2019 meeting: Market is attaching 7.5 percent probability that rates will be at 2.00-2.25 percent, 35.2 percent probability that rates will be at 2.25-2.50 percent, and 37.3 percent probability that rates will be at 2.50-2.75 percent, 16.2 percent probability that rates will be at 2.75-3.00 percent, 3.5 percent probability that rates will be at 3.00-3.25 percent, and 0.4 percent probability that rates will be at 3.25-3.50 percent.
   
• December 2019 meeting: Market is attaching 7.5 percent probability that rates will be at 2.00-2.25 percent, 35.2 percent probability that rates will be at 2.25-2.50 percent, and 37.3 percent probability that rates will be at 2.50-2.75 percent, 16.2 percent probability that rates will be at 2.75-3.00 percent, 3.5 percent probability that rates will be at 3.00-3.25 percent, and 0.4 percent probability that rates will be at 3.25-3.50 percent.
   

The probability is suggesting,

• Since our last review a week ago, the probabilities have tightened to some extent. In the previous week, it had eased sharply.
• The market is pricing the fourth hike in December with 74.9 percent probability, same as a week ago.
• The first rate hike of 2019 is priced in March with 30.5 percent probability, compared to 22.6 percent a week ago.
• The second hike for 2019 is now priced in September with an 18.5 percent probability, compared to 12.2 percent a week ago. 
• The probabilities have changed significantly over the past three weeks. The market has significantly repriced.
• The market is just pricing one rate hike for 2019 with 57.4 percent probability.