What's priced in for the Federal Reserve

Author: Adam Button | Category: Central Banks

How many hikes this year?

The Federal Reserve will hike US interest rates this year but the question is: how much?

Boston Fed President Eric Rosengren said Friday that he envisioned more than three more hikes this year. The market thinks it will more likely be less.

For starters, a single further hike this year is already fully priced in and it's overwhelmingly expected to come on June 13, not at the upcoming meeting on May 2. Because of strong data and upbeat commentary in this week's FOMC minutes, the odds of a hike on June 13 have risen to 86.7% from 73.8% since the start of the month. That's hardly been reflected in the dollar because market moves have been dominated by trade and geopolitical worries.

Looking later in the year, the next big debate is the September 26 meeting. The odds of a second further hike that day are 51.5%. The odds of a third further hike by year end are 24.4%.

If Rosengren is right then the market is way offside because the odds of more than three more hikes this year are just 2.5%.