CBOT Fed Watch - August 5 Market Close

Following up on David Altig’s post at macroblog earlier this week, 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.  The noteworthy part is the change in the probaility when the employment report is released:

CBOT Fed Watch - August 5 Market Close - Based upon the August 5 market close, the CBOT 30-Day Federal Funds futures contract for the August 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 3-1/4 percent to 3-1/2 percent at the FOMC meeting on August 9.

In addition, the CBOT 30-Day Federal Funds futures contract is pricing in a 6 percent probability of a further 25-basis point increase in the target rate to 3-3/4 percent (versus a 94 percent probability of just a 25-basis point rate increase).

August 2: 96% for +25 bps versus 4% for +50 bps.
August 3: 96% for +25 bps versus 4% for +50 bps.
August 4: 96% for +25 bps versus 4% for +50 bps.
August 5: 94% for +25 bps versus 6% for +50 bps.
August 8:
August 9: 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 3.50%, and a 6% chance it will increase an additional .25% to 3.75%.