Using Federal Funds Futures Rates to Predict Federal Reserve Actions

Resource Information

The work Using Federal Funds Futures Rates to Predict Federal Reserve Actions represents a distinct intellectual or artistic creation found in Bowdoin College Library. This resource is a combination of several types including: Work, Language Material, Books.

Label

Using Federal Funds Futures Rates to Predict Federal Reserve Actions

Creator

• Inter-university Consortium for Political and Social Research [distributor]
• Robertson, John C

Contributor

• Thornton, Daniel L.

Author

• Thornton, Daniel L.
• Robertson, John C

Contributor

• Inter-university Consortium for Political and Social Research [distributor]

Subject

• Federal Reserve System
• monetary policy

Summary

The federal funds futures rate naturally embodies the market's expectation of the average behavior of the federal funds rate. This research points out that analysts cannot attempt to identify federal policy from the behavior of the federal funds futures rate without making somewhat arbitrary additional assumptions. Also studied is the predictive accuracy of a rule based on the federal funds futures rate from October 1988 through August 1997 using an assumption that is sufficient for partially identifying when the market is expecting a federal action but not for predicting the magnitude of the action. The forecasting rule correctly predicts a target change at the one-month horizon only about one-third of the time. The conclusion is that more research is needed, especially in light of the Federal Open Market Commission's (FOMC) recent practice of disclosing policy decisions immediately after FOMC meetings