BOJ Holds Rates at 1% as Inflation Outlook Eases, October Rate Hike Still Possible 
Fed Holds Interest Rates Steady as Kevin Warsh Says Rising Treasury Yields Tighten Financial Conditions 
Japan Services Producer Prices Rise 3.2% in June, Supporting BOJ Rate Hike Expectations 
Chile Central Bank Holds Interest Rate at 4.5% as Inflation and Global Risks Persist 
ECB Expected to Hold Rates as Middle East Tensions Keep September Hike in Focus 
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 22nd April)
- May 2019 meeting: Market is attaching 2 percent probability that rates will be at 2.00-2.25 percent, and 98 percent probability that rates will be at 2.25-2.50 percent.
- June 2019 meeting: Market is attaching 20 percent probability that rates will be at 2.00-2.25 percent, and 80 percent probability that rates will be at 2.25-2.50 percent.
- July 2019 meeting: Market is attaching 2.9 percent probability that rates will be at 1.75-2.00 percent, 27.2 percent probability that rates will be at 2.00-2.25 percent, and 69.9 percent probability that rates will be at 2.25-2.50 percent.
- September 2019 meeting: Market is attaching 9.2 percent probability that rates will be at 1.75-2.00 percent, 37.1 percent probability that rates will be at 2.00-2.25 percent, and 53.7 percent probability that rates will be at 2.25-2.50 percent.
- October 2019 meeting: Market is attaching 13.2 percent probability that rates will be at 1.75-2.00 percent, 38.8 percent probability that rates will be at 2.00-2.25 percent, and 48 percent probability that rates will be at 2.25-2.50 percent.
- December 2019 meeting: Market is attaching 4.3 percent probability that rates will be at 1.50-1.75 percent, 18 percent probability that rates will be at 1.75-2.00 percent, 41 percent probability that rates will be at 2.00-2.25 percent, and 36.7 percent probability that rates will be at 2.25-2.50 percent.
The probability is suggesting,
- Since our last review a week ago, the probabilities have sharply turned dovish. However, it is less to do with the state of the U.S. economy but rather the march higher by the effective federal funds rate, which is widening against the interest rate the Fed pays on excess reserve.
- The market is pricing the possibility of a rate cut with 63.3 percent probability, compared to 43.7 percent last week, and 42.7 percent in the week before that.
