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 - 225-250 bps (Note, all calculations are based on data as of 24th December)

• January 2019 meeting: Market is attaching 2.1 percent probability that rates will be at 2.00-2.25 percent, and 97.9 percent probability that rates will be at 2.25-2.50 percent.
   
• March 2019 meeting: Market is attaching 1.8 percent probability that rates will be at 2.00-2.25 percent, 80.6 percent probability that rates will be at 2.25-2.50 percent, and 17.7 percent probability that rates will be at 2.50-2.75 percent.
   
• May 2019 meeting: Market is attaching 1.6 percent probability that rates will be at 2.00-2.25 percent, 75.8 percent probability that rates will be at 2.25-2.50 percent, 21.5 percent probability that rates will be at 2.50-2.75 percent, and 1.1 percent probability that rates will be at 2.75-3.00 percent.
   
• June 2019 meeting: Market is attaching 1.4 percent probability that rates will be at 2.00-2.25 percent, 65.9 percent probability that rates will be at 2.25-2.50 percent, and 28.7 percent probability that rates will be at 2.50-2.75 percent, 3.8 percent probability that rates will be at 2.75-3.00 percent, 0.1 percent probability that rates will be at 3.00-3.25 percent.
   
• July 2019 meeting: Market is attaching 1.2 percent probability that rates will be at 2.00-2.25 percent, 56 percent probability that rates will be at 2.25-2.50 percent, and 33.8 percent probability that rates will be at 2.50-2.75 percent, 8 percent probability that rates will be at 2.75-3.00 percent, and 1 percent probability that rates will be at 3.00-3.25 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 1.1 percent probability that rates will be at 2.00-2.25 percent, 51.3 percent probability that rates will be at 2.25-2.50 percent, and 35.7 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, 1.5 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.
   
• December 2019 meeting: Market is attaching 5.7 percent probability that rates will be at 2.00-2.25 percent, 49.9 percent probability that rates will be at 2.25-2.50 percent, and 33.4 percent probability that rates will be at 2.50-2.75 percent, 9.4 percent probability that rates will be at 2.75-3.00 percent, 1.4 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.
   

The probability is suggesting,

• Since our last review a week ago, the probabilities have eased to some extent, despite a hike from the Fed.
• The first rate hike of 2019 is priced in March with 17.7 percent probability, compared to 30.5 percent a week ago.
• The second hike for 2019 is now priced in September with an 18.5 percent probability, same as a week ago. 
• The probabilities have changed significantly over the past four weeks. The market has significantly repriced hikes.
• The market is just pricing one rate hike for 2019 with 48.3 percent probability, which means that no hike is priced for 2019 despite Fed forecasting two rate hikes.