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Fed fund futures
Hi,How can i know how many percentage market prices in that the FOMC will increase/decrease Fed fund rate? Understand that this has to be calculated from Fed fund futures.Thanks for your help.
Fed fund futures
You look at the meeting schedule. And you make some assumptions, like what the chances are of raising between meetings, half-point moves, and so on. Really the fed-fund futures have to be used in combination with what they say and have said and have done, I don't think there is a strictly mathematical way to do it, though I guess you could look at options and stuff.
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Fed fund futures
check out this paper:http://www.clevelandfed.org/Research/Wo ... WP0507.pdf
Fed fund futures
The way I do it is to use simplistic expected values and assume 2 states: no move, or a 25bp hike (or say, no move vs 25bps cut). The assume with prob x they will not move, and 1-x they will move 25bps, and find x such that the expected value of the Euro/$ futures is equal to the current market price...