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Using Fed Funds Futures to Read Rate Hike Expectations

Article Quant Q&A · Author: emcor
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Summary

The note identifies CME 30-day Federal Funds futures as a market instrument for interpreting expectations about Federal Reserve rate decisions. It responds to a question about a reported shift in expected hike timing after China devalued the yuan, pointing readers to the futures curve as the relevant reference.

The contracts settle against the average overnight rate set by the Fed during each contract month, linking their prices to realized policy rates. The document does not explain how to convert prices into implied probabilities or distinguish policy expectations from other pricing effects, so it offers an instrument identification rather than a full forecasting method.

Key ideas

  • 30-day Federal Funds futures are used to gauge market expectations for Federal Reserve policy rates.
  • Each contract settles against the average overnight rate set by the Fed during its contract month.
  • A futures curve can show shifts in expected timing, but the note does not describe a probability calculation.

Tags

FuturesFixed incomeUS markets
Full text
# U.S. Rate Hike Prediction


# U.S. Rate Hike Prediction












In a recent ft.com video an analyst mentioned that markets postponed their Fed rate hike expectation from September to around November 2015 due to the CNY devaluation, based on the "shift" of some "futures" curve.

Which future rate curve predicts(reflect) rate hike expectations and please include a real-time updated link to that curve?

## Answer by meh (score 5, accepted)

https://quant.stackexchange.com/a/19334

The CME' Fed Fund Futures are what you are looking for.

http://www.cmegroup.com/trading/interest-rates/stir/30-day-federal-fund.html

On settlement day they settle at the average overnight rate set by the Fed during the contract month.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.