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Federal Funds Rate Forecast Calculators
The Federal Funds Rate contract has been a precise forecast of the Federal Reserves near term action on interest rates. Forecasters use a formula to predict the probability of a change in the Federal Funds rate. The odds are based on the price of contracts for Fed Funds Futures that are traded on the Chicago Board of Trade (CBOT). Investors use these futures to hedge against, or speculate on, movements in interest rates. The prices of Fed Funds Futures contracts are a reflection of potential future interest rate moves by the Federal Reserve. The Federal Funds Futures market makes its best assumption about Fed movements several months away. It is easier to use the 30-Day Federal Fund contract expiring the month after a Fed meeting. It can be obtained from the 30-DAY FED FUNDS link under Quotes. If you would want a forecast of what the Federal Funds rate will be in August, you would use the September Federal Fund Contract price. The Fed moves in minimum quarter-point increments. If the Implied Interest rate were 3.54, the Expected Rate would be 3.75. If it were 3.49, the Expected Rate would be 3.50. 2008 Federal Reserve Meetings:
Fed Cutting
Enter data into the blue fields in the calculator below:
Fed Raising
As of 3/26/02, the 30 Day Federal Fund (June Settlement Price) was 98.03. The June contract equates to a 1.97% fed fund rate for that month. The implied interest rate is 100 minus the settlement price (100 - 98.03 = 1.97%). The Fed moves in minimum quarter-point increments and 1.97 is between a low end of 1.75 and a high end of 2.00. There is an 88% chance of a quarter-point rate hike when the Fed meets in May. Enter data into the blue fields in the calculator below:
3-Month Eurodollar Futures
Yields on Eurodollar futures are a signal of a three-month lending rate that has averaged 18 to 24 basis points more than the Feds target over the past 10 years. When the yield on Eurodollar Interest-rate futures increases, that reflects traders are increasing bets that the Fed will raise it's target rate (Fed Funds Rate) for overnight loans between banks. When traders push yields on interest-rate futures lower, it's a sign they see less chance of the Fed raising its benchmark rate. Enter data into the blue fields below:The information on this page, although taken from sources believed to be reliable, does not constitute investment advice and is not guaranteed by Blue Chip Pick as to its accuracy or completeness, nor any trading result, and is intended for purposes of information and education only. |
| LIBOR - OIS (November 11, 2008) LIBOR is down to 2.18% a 4-year low. It reached a high of 4.81% on 10/10/08 when equities found new 52 week lows. It was about 2.81% the day Lehman filed for bankruptcy on 9/15/08. LIBOR-OIS spread may be a worry. It has fallen to 168 basis points, which compares to 87 basis points on the last trading day before Lehman declared bankruptcy, but has averaged 11 basis points in the five years before the recent financial crisis. In the last five years before January we had just completed a 4 1/2 year bull market (03-07). Alan Greenspan stated recently that the LIBOR-OIS spread should serve as a measure for determining when markets have returned to normal. 168 basis points does not seem normal to me. |
| FED FUNDS FUTURES (November 8, 2008) Based upon the 30-Day Federal Funds futures contract for the December 2008 expiration is yielding an implied rate of .47% and currently pricing in a 100% chance that the FOMC will decrease the target rate by 50 basis points to .50% on 12/16/2008. The gap change between Long Term Treasury yields and the Fed Fund Rate can indicate growth direction. The gap increasing between the two rates may indicate slower growth may be near. |
| FED FUNDS FUTURES (October 31, 2008) Based upon the 30-Day Federal Funds futures contract for the December 2008 expiration is yielding an implied rate of .64% and currently pricing in a 100% chance that the FOMC will decrease the target rate by 25 basis points to .75%, and a 44% chance of a 50 bps cut to .50% on 12/19/2008. The gap change between Long Term Treasury yields and the Fed Fund Rate can indicate growth direction. The gap increasing between the two rates may indicate slower growth may be near. |
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