Fed Rate Hike – How to Determine the Interest Rate Sentiment and Rate Hike Probability
One of the most common question every calendar quarter is, “will Fed rate hike?”.
As we approach the quarterly Federal Reserve meeting traders and investors have to re-position their portfolios.
This asset shuffling creates a lot of volatility and opportunity for day traders and swing traders.
But how do you know what the market is forecasting?
Fed Rate Hike – Where to Find the Fed Rate Hike Probability Chart
The Chicago Mercantile Exchange (CME) has a futures product that allows market participants to speculate on the rate hike odds and the probability of a Fed rate hike.
Because the market trades actively, these odds are a snapshot of the present expectation for a future Fed rate hike.
This is very important, because it means that odds are constantly changing as new information becomes available.
To get the latest look at Fed rate hike odds and CME rate hike probability, you can click here to visit the CME Group’s website >
Once you get the chart, it is all about interpreting it correctly.
Fed Rate Hike – How to Interpret the Chart, and What it Means
Below you will find the most recent Fed rate hike odds chart, which also shows the probability of a Fed rate hike.
The target probability is for a rate hike on the upcoming June FOMC meeting.
You can see that the stock market is pricing in a 91.3% rate hike probability for a 1.75% to 2.00% current Fed interest rate.
The current Fed rate is 1.50% to 1.75% (top of chart below title).
This simply means that the Federal Reserve is expected to raise rates by 0.25% in the upcoming FOMC meeting.
Said differently, there is only an 8.7% probability the Fed does NOT hike rates.
This outcome would be more surprising and would lead to greater market volatility as investors and institutional money scrambles to re-balance their portfolios.
Fed Rate Hike – The 70% Rule of Probability
When the implied Fed rate hike odds are more than 70%, the Federal Reserve has always made a move to raise rates.
If the Fed decided not to raise rates, this would rock the boat and cause a lot of market volatility.
Furthermore, it taints the Fed’s image and they lose credibility and trust with investors.
So when you see a 70% rate hike probability or higher, you can almost assume the rate hike is a done deal.
At that point, the more important part is looking at the inner workings of the statement and report.
It is all about the latest economic forecasts, the Fed dot plots, inflation out look and future guidance of rate hikes.
The truth is there is no set formula for success.
As a day trader you have to prepare yourself to react to changing sentiment and ride the momentum.
During FOMC meeting minutes and reports you have to ditch your bias and trade what you see, not what you want.
Fed Rate Hike – Where to Find the Latest Updates and How to Trade the Report?
At the end of the day, the most important thing is how you trade the Fed rate hike announcement, considering the rate hike odds and CME rate hike probability.
In order to do this, you need to stay up to date with the stock market and latest developments.
I want to invite you to join us on YouTube for a FREE daily stock market update.
I will be talking extensively about the Fed rate hike and other developments, plus providing you insight on how to trade these volatile events.
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Fed Rate Hike – Conclusion
Whether you are an investor or active trader, you absolutely must stay up to date with the latest Federal Reserve developments.
Now you know where to find out the market expectation for the upcoming meeting (and future ones).
We trade these events in our live trading room with our Day Trader and ELITE subscribers.
If you want to join us in our live trading room, check out the Day Trader package here >
If you prefer to trade more passively, checkout our newsletter, trade ideas and live analysis in the Swing Trader package here >
The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.
