In its last monetary policy forecast, the Federal reserve has projected three rate hikes in 2017 but that is quite an upgrade given the facts that the FED has raised rates only twice over the past two years. In both 2015 and 2016, Fed projected a much higher number of hikes than it actually delivered. So can 2017 be the same?
The financial market is not at all convinced of three hikes from the Fed. As of the current projection using Federal funds rate future, once can see that the market is projecting the next hike to be in June, with greater than 50 percent probability. The probability of a hike in June is currently just above 70 percent. The market is projecting the next hike to be in September and that with just above 50 percent probability. According to the market, the probability of a more than two hikes by December currently stands at just about 42 percent.
To keep up with its projection and to keep the hikes smooth and uniform, the Federal Reserve needs to hike rates before June or else, the chance of three hikes are really small. If the Fed wants to move ahead with three hikes starting from June, it would be the most hawkish stance for the Fed since 2006.