Chart of the week

Rate-hike expectations plunge

Get more context on the recent nosedive in market expectations of a rate hike during the first half of 2019.

January 4, 2019 | 1 minute read
Market expectations for Fed activity through June 2019
  • The FOMC raised rates at its December meeting as expected but delivered a hawkish surprise by keeping language about “further gradual increases” in its accompanying statement.1 At his press conference, Fed Chair Powell also asserted that “the economy will grow in a way that will call for two interest rate increases” in 2019.2
  • Given the significant recent market volatility coupled with mixed economic data in January, however, Dallas Fed President Robert Kaplan commented this week that the Fed should sit tight until “some of these uncertainties resolve themselves.”3
  • Investors appear to agree with Kaplan. As the chart shows, market-based expectations for another Fed hike through June 2019 have moved from approximately 80% in November 2018 to 0% today.4 In the same time frame, expectations that the Fed will make no changes in the first half of 2019 have jumped from approximately 15% to 83%.4
  • With short-term rates potentially anchored near current levels, and longer-term Treasury yields trading near 12-month lows, generating a competitive level of income in 2019 may be as challenging as it has been the past several years.5

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