Tuesday, June 22, 2010

Predicting Fed Rates

A good question a reader sent to me yesterday was to explain how futures or options may be used to predict Fed rates. A great source to gain a better understanding of this subject is the Cleveland Fed's website. The link below is to their FAQ's page:

http://www.clevelandfed.org/research/data/fedfunds/faq.cfm

Questions 4 and 8 deal directly with this topic. Copy and pasting the information found there is a bit difficult since they use tables in the description. Should you have interest in how it is all done, simply click the above link and read the answers to questions 4 and 8.

Of course gaining a better understanding of how futures may be used to gauge expectations doesn't mean you want to actually do the calculations. Fortunately, they do them for you. The link below is updated daily and shows estimates for meeting outcomes.

http://www.clevelandfed.org/research/data/fedfunds/

Currently the estimates are suggesting there is virtually no chance of a rate increase tomorrow.

Of course even if you know what the Fed is going to do with rates, that doesn't tell you any probabilities or edges related to market reaction and behavior on or around these meetings. For that information, you'll need to read "The Quantifiable Edges Guide to Fed Days". The next Fed Day is tomorrow, June 23rd. The guide is available in ebook or paperback. If you would prefer the paperback, but want to read it tonight, just email your purchase receipt before tomorrow's meeting and I'll send you the ebook version.


Edit: Jeff Pietsch of Market Rewind in the comments section provided a link to a tool from the CME that predicts rates. Below is a lnk to the tool:

http://www.cmegroup.com/trading/interest-rates/fed-funds.html

2 comments:

jgpietsch said...

Hi Rob, your readers may find this tool helpful:

http://marketrewind.blogspot.com/2010/04/new-fomc-rate-change-probability-tool.html

Best, Mrkt_Rwnd

志易 said...

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