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Wednesday, March 16, 2005

Wonk Wonk!!! Federal Funds Rate Futures

Have you seen this? It's from the Chicago Board of Trade (thanks to George Evans for telling me about this):

CBOT Fed Watch - March 16 Market Close

In advance of next week's Federal Open Market Committee meeting on March 22, the Chicago Board of Trade will be reporting daily rate change probabilities in the FOMC's federal funds target rate, as indicated by the CBOT 30-Day Federal Funds futures contract. The CBOT 30-Day Federal Funds futures contract is a key benchmark interest rate barometer that reflects the forward overnight effective rate for excess reserves that are traded among commercial banks in the U.S. federal funds market.

Based upon the March 16 market close, the CBOT 30-Day Federal Funds futures contract for the April 2005 expiration is currently pricing in a 100 percent probability that the FOMC will increase the target rate by at least 25 basis points from 2-1/2 percent to 2-3/4 percent at the FOMC meeting on March 22.

In addition, the CBOT 30-Day Federal Funds futures contract is pricing in an 8 percent probability of a further 25-basis point increase in the target rate to 3 percent (versus a 92 percent probability of just a 25-basis point rate increase).

Summary Table

March 15: 92% for +25 bps versus 8% for +50 bps.
March 16: 92% for +25 bps versus 8% for +50 bps.
March 17:
March 18:
March 21:
March 22: FOMC decision on federal funds target rate.

So, currently there is a 100% chance of a 25 basis point increase in the Federal Funds rate to 2.75% according to the CBOT 30-Day Federal Funds futures contract. In addition, there is an 8% chance of an additional 25 basis point increase to 3%. Looks like the market beleives, as I do, that gradualism will prevail.

    Posted by on Wednesday, March 16, 2005 at 10:08 PM in Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (0)

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