FOMC & NFP: What’s Priced In for FOMC Hikes Now?


5th May 2017

Analysis of the rates markets can give us an accurate guide on the market’s perception on the outlook for hikes or cuts at future policy meetings.  The table below summarises what’s priced in for Fed hikes or cuts at the next FOMC meetings: how many basis points, how many individual hikes or cuts this is equivalent to, and how the probabilities have changed.

Reminder: we base our pricing analysis on the OIS markets

What's Priced in For FOMC

The market implied FOMC rate path for this year is particularly interesting given we are now in the middle of a hiking cycle.  Everyone is expecting more hikes, the only debate is how many.  We have already have one hike in 2017 (in March).  Views are split on the street as to whether we will get one, two or even three more hikes this year.

We can see from the table that the market is currently priced for another 1.54 hikes (of 25bp) this year (by the end of the Dec meeting) – ie the market thinks we will definitely get one more hike, and is 50/50 on whether we get a second hike.  When will the first hike be?  The market views it as fairly likely (74%) that the hike will be at the June meeting and it’s (more than) fully priced in by September.

How did the May FOMC meeting on Wednesday, and NFP today, change things?  Both events had a small upward impact on the chances of hikes, overall increasing the expected number of hikes this year to 1.54 from 1.38 before the statement was released. As expected we didn’t get a hike but overall the market saw the statement as slightly more hawkish.  The NFP beat and unemployment data today also added to this effect, although it was partly offset by the soft wage data.

Our website also has a full schedule of upcoming FOMC meetings


Author: Michael Colman