• FED hike aftermath series: hike probabilities over coming meetings

    Source: FxWire Pro - Commentary / 20 Aug 2018 00:38:01   America/New_York

    FOMC increased interest rates in March and June and increased its forecast from three rate hikes in 2018 to four rate hikes. June decision was unanimous. Current Federal funds rate - 175-200 bps (Note, all calculations are based on data as of 20th August)

    • September 2018 meeting: Market is attaching 4 percent probability that rates will be at 1.75-2.00 percent, and 96 percent probability that rates will be at 2.00-2.25 percent.
       
    • November 2018 meeting: Market is attaching 4 percent probability that rates will be at 1.75-2.00 percent, and 96 percent probability that rates will be at 2.00-2.25 percent.
       
    • December 2018 meeting: Market is attaching 1.2 percent probability that rates will be at 1.75-2.00 percent, 32.6 percent probability that rates will be at 2.00-2.25 percent, and 66.1 percent probability that rates will be at 2.25-2.50 percent.
       
    • January 2019 meeting: Market is attaching 1.2 percent probability that rates will be at 1.75-2.00 percent, 31.3 percent probability that rates will be at 2.00-2.25 percent, 64.7 percent probability that rates will be at 2.25-2.50 percent, and 2.8 percent probability that rates will be at 2.50-2.75 percent.
       
    • March 2019 meeting: Market is attaching 0.6 percent probability that rates will be at 1.75-2.00 percent, 17.3 percent probability that rates will be at 2.00-2.25 percent, 49.2 percent probability that rates will be at 2.25-2.50 percent, and 31.6 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.
       
    • May 2019 meeting: Market is attaching 0.6 percent probability that rates will be at 1.75-2.00 percent, 15.8 percent probability that rates will be at 2.00-2.25 percent, 46.3 percent probability that rates will be at 2.25-2.50 percent, and 33.2 percent probability that rates will be at 2.50-2.75 percent, and 4.1 percent probability that rates will be at 2.75-3.00 percent.
       
    • June 2019 meeting: Market is attaching 0.4 percent probability that rates will be at 1.75-2.00 percent, 10.5 percent probability that rates will be at 2.00-2.25 percent, 35.6 percent probability that rates will be at 2.25-2.50 percent, and 37.8 percent probability that rates will be at 2.50-2.75 percent, 14.2 percent probability that rates will be at 2.75-3.00 percent, 1.5 percent probability that rates will be at 3.00-3.25 percent.
       

    The probability is suggesting,

    • Since our last review a week ago, the probabilities have eased for far months.
    • The market is pricing the third hike for 2018 in September and pricing it with 96 percent probability compared to 93.6 percent a week ago.
    • The market is pricing the fourth hike in December with 66.1 percent probability instead of 61.3 percent probability just a week ago.
    • The first rate hike of 2019 is priced in June with 53.5 percent probability, instead of 50.9 percent probability just a week ago.
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