Fed Hike aftermath Series: Hike probabilities over coming meetings

FOMC followed through its promise and hiked rates four times in 2018 and forecasted two more rate hikes for 2019. Current Federal funds rate - 225-250 bps (Note, all calculations are based on data as of 31st December)

• January 2019 meeting: Market is attaching 1.6 percent probability that rates will be at 2.00-2.25 percent, and 98.4 percent probability that rates will be at 2.25-2.50 percent.
   
• March 2019 meeting: Market is attaching 1.5 percent probability that rates will be at 2.00-2.25 percent, 93.4 percent probability that rates will be at 2.25-2.50 percent, and 5.1 percent probability that rates will be at 2.50-2.75 percent.
   
• May 2019 meeting: Market is attaching 1.4 percent probability that rates will be at 2.00-2.25 percent, 88.8 percent probability that rates will be at 2.25-2.50 percent, 9.5 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.
   
• June 2019 meeting: Market is attaching 1.4 percent probability that rates will be at 2.00-2.25 percent, 84.4 percent probability that rates will be at 2.25-2.50 percent, and 13.5 percent probability that rates will be at 2.50-2.75 percent, and 0.7 percent probability that rates will be at 2.75-3.00 percent.
   
• July 2019 meeting: Market is attaching 2.2 percent probability that rates will be at 2.00-2.25 percent, 83.7 percent probability that rates will be at 2.25-2.50 percent, and 13.3 percent probability that rates will be at 2.50-2.75 percent, and 0.7 percent probability that rates will be at 2.75-3.00 percent.
   
• September 2019 meeting: Market is attaching 2.1 percent probability that rates will be at 2.00-2.25 percent, 78.1 percent probability that rates will be at 2.25-2.50 percent, and 18.2 percent probability that rates will be at 2.50-2.75 percent, 1.6 percent probability that rates will be at 2.75-3.00 percent, and 0.1 percent probability that rates will be at 3.00-3.25 percent.
   
• October 2019 meeting: Market is attaching 2.1 percent probability that rates will be at 2.00-2.25 percent, 78.1 percent probability that rates will be at 2.25-2.50 percent, and 18.2 percent probability that rates will be at 2.50-2.75 percent, 1.6 percent probability that rates will be at 2.75-3.00 percent, and 0.1 percent probability that rates will be at 3.00-3.25 percent.
   
• December 2019 meeting: Market is attaching 0.2 percent probability that rates will be at 1.75-2.00 percent, 9.9 percent probability that rates will be at 2.00-2.25 percent, and 71.9 percent probability that rates will be at 2.25-2.50 percent, 16.5 percent probability that rates will be at 2.50-2.75 percent, 1.4 percent probability that rates will be at 2.75-3.00 percent, and 0.1 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 further, despite two more hike forecasts by the Fed.
• The first rate hike of 2019 is priced in March with 9.8 percent probability, compared to 17.7 percent a week ago.
• The second hike for 2019 is now priced in September with a 1.7 percent probability, compared to 18.5 percent a week ago. 
• The probabilities have changed significantly over the past five weeks. The market has significantly repriced.
• The market is just pricing one rate hike for 2019 with 18 percent probability, compared to 48.3 percent a week ago, which means that the market is pricing no rate hike in 2019, despite Fed’s forecast of two hikes.
• The market is now pricing a rate cut in 2019 with 10.1 percent probability.