Fed Funds Futures and the News‪.‬

Introduction Since the introduction of the fed funds futures contract on October 3, 1988, daily fluctuations in futures prices have provided economic researchers and Federal Reserve Board (Fed) policymakers with a means for capturing market participant's expectations for the future path of the fed funds rate. Received theory suggests that the price on such futures contracts should embody predictions for the expected monthly average of the daily effective funds rate in the contract month,, as these contracts lock in the interest rate at which a bank will borrow overnight fed funds at some future date. Since the average monthly effective rate closely follows the Federal Open Market Committee's (FOMC's) intended rate, futures rates are a more direct measure of financial market participants' expectations of future monetary policy than is typically available. This is promising, given that the federal funds rate has been the primary instrument of monetary policy in the post-nonborrowed reserves targeting period (essentially mid-1982 to date).