The CBOT's Fed Funds Rate Target Probabilities

Following up on David Altig’s post at macroblog, here is the Chicago Board of Trade’s calculation of the probabilities of changes in the FOMC's federal funds target rate, as indicated by the CBOT 30-Day Federal Funds futures contract:

CBOT Fed Watch - June 24 Market Close - Based upon the June 24 market close, the CBOT 30-Day Federal Funds futures contract for the July 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 3 percent to 3 1/4 percent at the FOMC meeting on June 30.

In addition, the CBOT 30-Day Federal Funds futures contract is pricing in a 4 percent probability of a further 25-basis point increase in the target rate to 3-1/2 percent (versus a 96 percent probability of just a 25-basis point rate increase).

June 23:  96% for +25 bps versus 4% for +50 bps.
June 24:  96% for +25 bps versus 4% for +50 bps.

June 30: FOMC decision on federal funds target rate.

Thus, according to the CBOT 30-Day Federal Funds futures contract, there is a 100% chance the target rate will increase .25% to 3.25%, and a 4% chance it will increase an additional .25% to 3.50%.

[Update 6/27/04:  The probabilities are unchanged June 27:  96% for +25 bps versus 4% for +50bps.]