Fed Funds Rate Predictions (May 2007)

The Federal Reserve Bank of Cleveland maintains an implied probability of FOMC meeting outcomes on thier site. This month shows a very high probability — about 97 98.5% — of no change in the Fed Funds rate.

Here’s the chart for the FOMC May meeting:

click for larger chart



The market is now pricing in less than a 5% chance of a cut at the June 28 FOMC meet and greet; August 7th we are looking at less than 20% chance of a cut.

When we look into the Fall, things begion to change: The September 18 meeting is between a 40% – 50% chance of a rate cut.


From the Cleveland fed site:

Options on federal funds futures can be
analyzed to extract public expectations of future Fed actions. The charts below
show what markets believe the most likely outcome of upcoming FOMC meetings will
be. The charts are updated every business day and reflect the most recent data
released by the Chicago Board of
. Probabilities can be estimated with various assumptions, which are
described in detail here and in the readme
worksheet of the downloadable Excel file. The assumptions used to construct each
day’s charts are indicated immediately below the pictures.


Hat tip: Macroblog



Fed Funds Rate Predictions
Economic Research and Data Monetary Policy
The Federal Reserve Bank of Cleveland, May 8, 2007 

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What's been said:

Discussions found on the web:
  1. James Bednar commented on May 9


    Sorry, but I’ve got to ask. What good is it?

    Maybe I’m reading this thing wrong, but it seems to be telling me it’s generally a poor predictor of the fed funds rate for anything other than a few weeks out.

    Look at the December 18th datapoint, roughly a 28% chance of a cut, only a 41-42% chance they’ll stand pat. I wish I had saved some of the older predictions, I’m sure they were likely much more pessimistic about the May meeting.

    Has the economy improved so markedly since December as to warrant such a change? Or is the Fed Funds Futures market just a bunch of pessimistic bears?


  2. Ross commented on May 9

    The Fed follows the markets not the other way around. Fed funds rate is only used to allow banks to set stupid prime rates. It’s all a game folks. Gov stats have been rigged since FDR but not so patently blatant as today. Inflation was over estimated in the 70’s 80’s and is now about 3% below reality. I recommend to you Herman Kahn’s book “The Coming Boom” circa 1981..Crafty old fat man, wasn’t he?

  3. Winston Munn commented on May 9

    Like it really matters in the long run what the Fed does – the Fed is a follower, not the leader it pretends to be.

  4. Tom K commented on May 9

    Fed Futures have been wrong for months now, back in Early December it was a lock for a rate cut in January, Nope. And also in January for a cut by May and again Nope. Bonds are being just as irrational as Stocks are. They are getting and have been way ahead of themselves, infact had they not been so bullish, i believe what they wanted all along may have happended, but by being so bullish they have allowed rates to stay low and have allowed a slower decent in housing then if they had not been so bullish.

  5. fatMary commented on May 9

    Remember that the Fed is a private institution that is in business to make money for its shareholders. It is neither federal nor does it hold reserves.

  6. Greg0658 commented on May 9

    fatMary reminds – Fed is a private institution.

    Thanks – I guess I knew that in the back of my noggin – but file it out of consciousness.

    A friend of a friend is selling silver certificates. I don’t think they sell like gasoline gallons in FedResDollars, and I get it again.

    So when North Korea counterfeits US dollars with a gravure press they bought somewhere in the EU – who is responsible for correcting this infraction and by what means, courts or military?

    I guess I agree the Fed is the official authorized supplier of US$ and we need to halt counterfeits. Much like NBA t-shirts.

    I guess another of those Parker Brothers Monopoly boardgame idiosyncrasies.

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