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US rate hike odds for 2018, day after the last FOMC for ’17

Based on CME FedWatch tool indicated probabilities captured the day after the last FOMC meeting in 2017, rate hike expectations for 2018 just turned for the worse.

In my previous analysis “9 ways to see a Fed rate hike in the next 12 months“, I wrote that based on the odds show in the CME FedWatch Tool, the odds of a rate hike on 13 Dec “is a near certainty“. Secondly, if Fed hikes, “there won’t be a hike in January“.

  1. Rate hike on 13 December 2017 is a near certainty (90.2%).
  2. If Fed doesn’t hike in December, it will near certainly hike in January (88.3%).
  3. There is only 0.25 hike between the next two meetings; the probability of a 0.50 hike is low (11.5%).
  4. If Fed hikes next week, there won’t be a hike in January (11.5% probability of second hike).
  5. Fed will continue to hike in 2018 (positive odds).
  6. The odds of a hike in 2018 (after the coming one) is at best 50.5% or none.
  7. The coming hike could be the last one.
  8. Fed could hike until 1.75 – 2.00 percent (positive odds).
  9. The Fed could cut rates in 2018 (positive odds).
CME FedWatch Tool screenshot taken on 06 Dec, 7 days from the last meeting of the yr

CME FedWatch Tool screenshot taken on 06 Dec, 7 days from the last meeting of the year

 

A look at the CME FedWatch Tool today, the morning after the last FOMC meeting for 2017, this is what the tool shows:

  1. There will not be a rate change in January 2018.
  2. The odds of one hike in March or May ’18 hike has fallen sharply.
  3. The odds of a hike from June or August has risen.
  4. However the odds of a rate cut in June or August has also risen sharply compared to last week’s data.
  5. Finally the odds of rates hitting 2% or more has fallen sharply.
CME FedWatch Tool screenshot taken on 14 Dec 2017

CME FedWatch Tool screenshot taken on 14 Dec 2017

 

Interpretation

  • Based on last week’s data, market was expecting up to 50 basis points hikes in the year 2018 over two sessions. One was expected between March – May and another between June – August.
  • Based on data today, odds of a combined 50 basis point hike in 2018 combined dropped lower.
  • Odds more closer to one rate hike of 25 basis points only for the whole year.
  • Expectations rise that the hike meant to happen in March – May will be delayed.
  • Consensus is now absent; apart from absolute certainty that rates will stay the same in January and better than 50% expectation in March and May, every other cell in this table has less than 50% odds.

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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