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Hello joach,
Last night I pulled out the two articles by Loren Fleckenstein from
TradingMarkets.com hjaving to do with predicting Fed action from Fed
Funds Futures. I haven't written the ela yet but plan to. But here's
the logic in quasi easylanguage:
{Data1 = Fed Funds futures that expire in the month of interest
(usually a month the FOMC meets).
Data2 = current Fed Funds rate (i.e., their official, current target)
}
Vars:QrPointProbability(0),
HalfPointProbability(0),
BasisPtChange(0),
ImpliedRate(0) { the rate Fed Funds traders areimplying by the current
trading price}
ImpliedRate = (100 - Close of Data1);
BasisPointChange = Close of Dat2 (Fed Funds Rate) - ImpliedRate;
QtrPointProbability = 100*(BasisPtChange/25) ;
HalfPtProbability = 100*(BasisPtChange/50);
Plot1(QtrPtProbability, "Q"); {plots the probablity of a 25 basis
point change}
Plot2(HalfPtProbability, "H"); {plots probability of 50 bp change}
As an alternative one could plot the current FFR and ImpliedRate.
TradingMarkets.com also explains how to do longer range estimates
based on the relationship of Eurodollars, LIBOR and FFR.
Best regards, Jim
Thursday, January 04, 2001, 3:42:50 PM, you wrote:
jdc> This sort of fits in with this thread...... It's from TradingMarkets.com
jdc> Maybe someone can explain the content note.... Maybe the interest rate hikes
jdc> can be forcast............
jdc> ............from TradingMarkets.com..........
jdc> "While all major media outlets
jdc> are touting the Fed's rate cut as a "surprise," the federal
jdc> funds futures contract traded at the Chicago Board of Trade
jdc> has clearly been indicating expectations of a 50 basis-point
jdc> cut, pricing in a nearly 100% chance of such an occurrence by
jdc> the end of the month, the time of the Fed's regularly
jdc> scheduled FOMC meeting on interest rate policy.
jdc> Where do we go from here? A look at this valuable predictor
jdc> of the Fed's policy provides some interesting clues. This
jdc> morning, the February contract (FFG1) is now pricing in an
jdc> 84% chance that the Fed will cut an additional 50 basis
jdc> points at its January meeting.
jdc> ................................................
jdc> Further down the road, the June contract is currently showing
jdc> a 76% chance of an additional 50 basis point cut, implying
jdc> that by this summer the federal funds interest rates will
jdc> stand at 5%, down from its current level of 6%. "
jdc> ....... end of quote.....
jdc> I have attatched a gif of the FundRate Futures........ Do any of you have any
jdc> information as to how to do this calcuation...???? This just be one of the
jdc> few clues that are readily available ...... without getting into somebody's
jdc> proprietary trading system.
jdc> John
jdc> "John T. Nelson" wrote:
>> Here we don't agree...
>>
>> By "stable prices" I don't think
>> the Fed had specifically stock prices in mind. I think
>> this refers to costs in labour, commodities, goods and
>> so forth.
--
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