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Article: Using federal funds futures rates to predict Federal Reserve actions. (includes article on the use of average funds rate as a biased estimator of the federal funds rate target)
- Article from:
- Federal Reserve Bank of St. Louis Review
- Article date:
- November 1, 1997
- Author:
CopyrightCOPYRIGHT 1997 Federal Reserve Bank of St. Louis. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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The Federal Reserve implements monetary policy by making discrete adjustments to its target for the federal funds rate. Such adjustments are believed to have significant implications for other short-term interest rates, so considerable resources are expended on forecasting the timing and magnitude of the Fed's next move. Many analysts, both inside and outside of the Federal Reserve System, look to the federal funds futures market for an indication of whether the market anticipates a change in Fed policy. Because futures market participants make commitments that are contingent on what they believe the federal funds rate will be, they necessarily look to factors they believe ...
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