The market thinks there is a 100.2% chance the Federal Reserve hikes in December
The CME Group's options-based fed funds futures currently gives a 100.2% chance that the Federal Reserve will raise its key interest rate by 25 basis points next month.
The Bloomberg World Interest Rate Probability (WIRP) function, another market-derived feature, puts the odds of some sort of increase at 100%. In fact, WIRP assigns a 2% possibility that the Fed hike will actually be bigger - 50 basis points - bringing rates to a corridor of 0.75% to 1%.
The WIRP odds for a 25 basis point hike sat at 58% as of the start of November and 80% the day before the US presidential election.
Given the strong market reaction following the election - both stocks and bond yields have soared - and the assumption that many of President-elect Donald Trump's policies will be inflationary, investors have become more confident in an increased path of rate hikes from the Fed.
Both CME and Bloomberg assign little possibility of another hike in March, the next meeting with a press conference after December, with just a 16.2% and 22.9% chance of the corridor being raised to 0.75% to 1% respectively.