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 28th January)

• January 2019 meeting: Market is attaching 98.9 percent probability that rates will be at 2.25-2.50 percent, and 1.1 percent probability that rates will be at 2.50-2.75 percent.
   
• March 2019 meeting: Market is attaching 95.1 percent probability that rates will be at 2.25-2.50 percent, and 4.9 percent probability that rates will be at 2.50-2.75 percent.
   
• May 2019 meeting: Market is attaching 91.3 percent probability that rates will be at 2.25-2.50 percent, and 8.7 percent probability that rates will be at 2.50-2.75 percent.
   
• June 2019 meeting: Market is attaching 79.1 percent probability that rates will be at 2.25-2.50 percent, 19.5 percent probability that rates will be at 2.50-2.75 percent, and 1.3 percent probability that rates will be at 2.75-3.00 percent.
   
• July 2019 meeting: Market is 76.7 percent probability that rates will be at 2.25-2.50 percent, and 21.4 percent probability that rates will be at 2.50-2.75 percent, and 2 percent probability that rates will be at 2.75-3.00 percent.
   
• September 2019 meeting: Market is 72.3 percent probability that rates will be at 2.25-2.50 percent, and 24.5 percent probability that rates will be at 2.50-2.75 percent, and 3.2 percent probability that rates will be at 2.75-3.00 percent.
   
• October 2019 meeting: Market is 72.3 percent probability that rates will be at 2.25-2.50 percent, and 24.5 percent probability that rates will be at 2.50-2.75 percent, and 3.2 percent probability that rates will be at 2.75-3.00 percent.
   
• December 2019 meeting: Market is attaching 4.3 percent probability that rates will be at 2.00-2.25 percent, 69.5 percent probability that rates will be at 2.25-2.50 percent, and 23.2 percent probability that rates will be at 2.50-2.75 percent, and 3 percent probability that rates will be at 2.75-3.00 percent.
   

The probability is suggesting,

• Since our last review a week ago, the probabilities have tightened somewhat.
• The market is pricing just one rate hike for 2019 with 26.2 percent probability, compared to a 23.4 percent a week ago and 10.8 percent in the week before that, which means that the market is still pricing no rate hike in 2019, despite Fed’s forecast of two hikes.
• The market is now pricing a rate cut in 2019 with 4.3 percent probability, compared to 4.4 percent a week ago, and 17.4 percent probability, a week before that.