Comparing OIS Swaps and Fed Funds Futures for Meeting Rate Expectations
Summary
The document compares two ways to infer expected Federal Reserve rate changes across upcoming meetings: differences between successive overnight index swap rates, and implied average rates from fed funds futures. It gives a dated example using swap quotes and futures prices, then converts the first futures contract’s price into an implied average fed funds rate while accounting for the meeting date within the contract period.
The calculations produce different estimates for the first meeting, and the discrepancy grows when the author extends the futures calculation to the next meeting. The post asks why the methods disagree but provides no resolution. Its figures are specific to the stated market snapshot, and the futures approach depends on correctly accounting for the days before and after each meeting; the example does not discuss other adjustments or establish which estimate is preferable.
Key ideas
- OIS rate differences and fed funds futures prices can both be used to estimate meeting-related rate changes.
- Futures prices reflect an average rate over the contract period, including days on both sides of a meeting.
- The example reports different implied cut estimates from the two approaches.
- The post leaves the source of the discrepancy unresolved and its calculations are tied to one dated snapshot.
Tags
Full text
# How to get the implied meetings rate correctly in US # How to get the implied meetings rate correctly in US I have two different ways to calculate how much rate cuts the market is pricing in for the Fed meetings, but I get slightly different values and want to understand where this difference comes from. I will do an exmaple for the first two meetings (17 set 2025 and 29 oct 2025) to show this using today's data (26 Aug 2025). First way: OIS Swaps BBG has this defaults swaps (please ignore the prices indicating in the print, I will use prices that I get from my worksheet because all prices are request at the same time) Important prices to calculations FEDL01 Index (Fed fudns effective) is 4.33 USSOFED1 Curncy is 4.1208 USSOFED2 Curncy is 3.9966 Given that both legs use the same accrual pattern and the begin and end dates fall between meetings, my fixed rate is also the same as I expected to be realized on any given day, assuming the fed funds rate remains constant between meetings. So for the price of the first meeting, I use 4.1208 - 4.33 = -20.92 bps And for the second meeting I use 3.9966 - 4.1208 = -12.42 bps Second way: Fed funds futures Relevant Prices: FFU5 (sep 25 contract): 95.765 FFV5 (oct 25 contract): 95.9 Starting with FFU5, there is a fed meeting at 17 sep 25, so until this the daily fed fund would be 4.33 (same as today) and after (4.33 - cuts priced for sep meeting). The price of the contract would be 100 - avg fed funds, I adjust the cuts priced to match the price of the future. Doing that I get -21.92bps of cuts priced. A image on excel of this calculation: When i do for the next meeting (assuming that i get -21.91bps on set meeting), gets worse, I get -32.31 bps of cuts priced for oct.
Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.