Greg Gibbs, Director at Amplifying Global FX Capital, explains that even though the market is now fully prepared for a 25bp rate hike on Wednesday, it is still not pricing in three rate hikes through this year in total.
“It has around a 50% chance that the Fed follows up on June 14 with a second hike this year.”
“In December last year, at the last FOMC Summary of Economic Projections, most members predicted three hikes this year (6 out of 17), three hikes was also the median of the projections.”
“The market has consistently priced in fewer hikes than the FOMC’s median forecasts over recent years. And the market has been right – the Fed has delayed hikes well beyond its projections over this period. The market is creeping closer to the FOMC median projections, but remains a step behind.”
“After the December policy meeting, the market moved to price in two hikes this year, one around mid-year and one near year-end. In the wake of the Fed members’ rate talk two weeks ago, the market has moved to price in more chance of three hikes, this year, but remains still a bit behind the December projection for three hikes.”