Fed Funds Rate Predictions
Background and Research
FOMC Communications and the Predictability of Near-Term Policy Decisions
by John B. Carlson, Ben Craig, Patrick Higgins, and William R. Melick
This Economic Commentary presents research based on the prices of fed funds futures, which shows that over the past decade, the public’s ability to predict FOMC interest rate decisions has improved, especially over horizons of two to three months.
An Option for Anticipating Fed Action
by John B. Carlson, William R. Melick, and Erkin Sahinoz
This Economic Commentary explains in general terms how options on fed funds futures can be used to gauge public expectations of future FOMC interest rate decisions.
Recovering Market Expectations of FOMC Rate Changes with Options on Federal Funds Futures
by John B. Carlson, Ben Craig, and William R. Melick, in The Journal of Futures Markets, vol. 25, no. 12 (December 2005), pp. 1203-44. [An earlier version of this paper is this working paper.]
This paper provides the technical details for using options on federal funds futures to recover the implied probability density function (PDF) for future Federal Open Market Committee (FOMC) interest rate outcomes.
For a discussion of the term-premium, see:
Futures Prices as Risk-Adjusted Forecasts of Monetary Policy
by Monika Piazzesi and Eric Swanson
National Bureau of Economic Research working paper, no. 10547