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. Before the meeting, the market was pricing no more hikes until the first half of 2018. Speaking over the weekend, Fed Chair Janet Yellen confirmed the current projection of another hike in December but confirmed that inflation has so far remained surprisingly low. Let’s take a look at the market pricing of hikes over the next 12 months.  Current FOMC rate is at 100-125 basis points. (Note, all calculations are based on data as of 17th October)

• November 1st meeting:  Market is attaching 98.5 percent probability that rates will be at 1.00-1.25 percent, and 1.5 percent probability that rates will be at 1.25-1.50 percent.
   
• December 13th meeting: Market is attaching 6.9 percent probability that rates will be at 1.00-1.25 percent, 91.7 percent probability that rates will be at 1.25-1.50 percent, and 1.4 percent probability that rates will be at 1.50-1.75 percent.
   
• January 2018 meeting: Market is attaching 6.6 percent probability that rates will be at 1.00-1.25 percent, 88.2 percent probability that rates will be at 1.25-1.50 percent, 5.1 percent probability that rates will be at 1.50-1.75 percent, and 0.1 percent probability that rates will be at 1.75-2.00 percent.
   
• March 2018 meeting: Market is attaching 5.4 percent probability that rates will be at 1.00-1.25 percent, 55 percent probability that rates will be at 1.25-1.50 percent, 37.1 percent probability that rates will be at 1.50-1.75 percent, and 2.4 percent probability that rates will be at 1.75-2.00 percent.
   
• May 2018 meeting: Market is attaching 5.1 percent probability that rates will be at 1.00-1.25 percent, 52 percent probability that rates will be at 1.25-1.50 percent, 38.2 percent probability that rates will be at 1.50-1.75 percent, 4.5 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 4.1 percent probability that rates will be at 1.00-1.25 percent, 35.5 percent probability that rates will be at 1.25-1.50 percent, 42.3 percent probability that rates will be at 1.50-1.75 percent, 16.2 percent probability that rates will be at 1.75-2.00 percent, 1.8 percent probability that rates will be at 2.00-2.25 percent, and 0.1 percent probability that rates will be at 2.25-2.50 percent.
   
• August 2018 meeting: Market is attaching 3.9 percent probability that rates will be at 1.00-1.25 percent, 33.3 percent probability that rates will be at 1.25-1.50 percent, 41.8 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, 2.8 percent probability that rates will be at 2.00-2.25 percent, and 0.2 percent probability that rates will be at 2.00-2.25 percent.
   
• September 2018 meeting: Market is attaching 2.7 percent probability that rates will be at 1.00-1.25 percent, 24.1 percent probability that rates will be at 1.25-1.50 percent, 39.2 percent probability that rates will be at 1.50-1.75 percent, 25.4 percent probability that rates will be at 1.75-2.00 percent, 7.6 percent probability that rates will be at 2.00-2.25 percent, 1 percent probability that rates will be at 2.25-2.50 percent, and 0.1 percent that rates will be at 2.50-2.75 percent.
   

The probability is suggesting,

• Hike odds have increased further, especially for the near months and especially for December by 3-4 percent since our last review back on 10th October. The market is now pricing more than 90 percent chance of a hike in December.
• In another interesting development, the market is pricing another hike in June 2018 with 60.4 percent probability, which 6.4 percent higher compared to our last review on 10th.

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