Fed Hike aftermath Series: Hike probabilities over next 12 months

Hike probability sharply spiked after last FOMC meeting, where projection material showed that the U.S. Federal Reserve is still projecting one more hike for 2017, which is likely to be December. The November FOMC statement suggested that the Fed is on its path to a hike in December. President Trump has recently announced his pick for Fed Chair and it is Jerome Powell, who will be heading Fed once Yellen’s term expires in February next year.  Current FOMC rate is at 100-125 basis points. (Note, all calculations are based on data as of 20th November)

• December 13th meeting: Market is attaching 91.5 percent probability that rates will be at 1.25-1.50 percent, and 8.5 percent probability that rates will be at 1.50-1.75 percent.
   
• January 2018 meeting: Market is attaching 91.5 percent probability that rates will be at 1.25-1.50 percent, and 8.5 percent probability that rates will be at 1.50-1.75 percent.
   
• March 2018 meeting: Market is attaching 50.2 percent probability that rates will be at 1.25-1.50 percent, 45.9 percent probability that rates will be at 1.50-1.75 percent, and 3.8 percent probability that rates will be at 1.75-2.00 percent.
   
• May 2018 meeting: Market is attaching 48.2 percent probability that rates will be at 1.25-1.50 percent, 46.1 percent probability that rates will be at 1.50-1.75 percent, 5.6 percent probability that rates will be at 1.75-2.00 percent, and 0.2 percent probability that rates will be at 2.00-2.25 percent.  
   
• June 2018 meeting: Market is attaching 28.9 percent probability that rates will be at 1.25-1.50 percent, 46.9 percent probability that rates will be at 1.50-1.75 percent, 21.8 percent probability that rates will be at 1.75-2.00 percent, 2.3 percent probability that rates will be at 2.00-2.25, and 0.1 percent probability that rates will be at 2.25-2.50 percent.
   
• August 2018 meeting: Market is attaching 26.6 percent probability that rates will be at 1.25-1.50 percent, 45.5 percent probability that rates will be at 1.50-1.75 percent, 23.8 percent probability that rates will be at 1.75-2.00 percent, 3.9 percent probability that rates will be at 2.00-2.25 percent, and 0.2 percent probability that rates will be at 2.25-2.50 percent.
   
• September 2018 meeting: Market is attaching 18.6 percent probability that rates will be at 1.25-1.50 percent, 39.8 percent probability that rates will be at 1.50-1.75 percent, 30.3 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, 1.3 percent probability that rates will be at 2.25-2.50 percent, and 0.1 percent probability that rates will be at 2.50-2.75 percent.
   
• November 2018 meeting: Market is attaching 17.4 percent probability that rates will be at 1.25-1.50 percent, 38.4 percent probability that rates will be at 1.50-1.75 percent, 30.9 percent probability that rates will be at 1.75-2.00 percent, 11.2 percent probability that rates will be at 2.00-2.25 percent, 1.9 percent probability that rates will be at 2.25-2.50 percent, and 0.2 percent probability that rates will be at 2.50-2.75 percent.
   

The probability is suggesting,

• Since our last review a week ago, the probability for the near month has eased somewhat. The market is attaching 91 percent probability of a rate hike in December, instead of 97 percent.
• However, interestingly, the probability of far months have tightened. The market is now pricing the 2018 hike in May instead of June. The market is now attaching 51.8 probability to a rate hike in May. The probability for June rate hike increased to 71.1 percent.

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