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 7th January)

• January 2019 meeting: Market is attaching 99.5 percent probability that rates will be at 2.25-2.50 percent, and 0.5 percent probability that rates will be at 2.50-2.75 percent.
   
• March 2019 meeting: Market is attaching 99.5 percent probability that rates will be at 2.25-2.50 percent, and 0.5 percent probability that rates will be at 2.50-2.75 percent.
   
• May 2019 meeting: Market is attaching 93.5 percent probability that rates will be at 2.25-2.50 percent, and 6.5 percent probability that rates will be at 2.50-2.75 percent.
   
• June 2019 meeting: Market is attaching 87.3 percent probability that rates will be at 2.25-2.50 percent, and 12.8 percent probability that rates will be at 2.50-2.75 percent.
   
• July 2019 meeting: Market is attaching 0.9 percent probability that rates will be at 2.00-2.25 percent, 86.5 percent probability that rates will be at 2.25-2.50 percent, and 12.7 percent probability that rates will be at 2.50-2.75 percent.
   
• September 2019 meeting: Market is attaching 2.9 percent probability that rates will be at 2.00-2.25 percent, 84.8 percent probability that rates will be at 2.25-2.50 percent, and 12.3 percent probability that rates will be at 2.50-2.75 percent.
   
• October 2019 meeting: Market is attaching 6.5 percent probability that rates will be at 2.00-2.25 percent, 81.7 percent probability that rates will be at 2.25-2.50 percent, and 11.8 percent probability that rates will be at 2.50-2.75 percent.
   
• December 2019 meeting: Market is attaching 1 percent probability that rates will be at 1.75-2.00 percent, 16.4 percent probability that rates will be at 2.00-2.25 percent, and 72.3 percent probability that rates will be at 2.25-2.50 percent, and 10.3 percent probability that rates will be at 2.50-2.75 percent.
   

The probability is suggesting,

• Since our last review a week ago, the probabilities have taken a turn from dovish to hawkish.
• The market is just pricing one rate hike for 2019 with 10.3 percent probability, compared to a 3.7 percent a week ago and 8 percent in the week before that, 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 17.4 percent probability, compared to 25.6 percent a week ago.