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Economic Commentary

How Well Does the Federal Funds Futures Rate Predict the Future Federal Funds Rate?

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Contrary to popular belief, federal funds futures rates do not tell us precisely where the market thinks federal funds rates will be in the future. On average, futures rates overpredict future fed funds rates, and, depending on whether fed funds rates are falling or rising, the futures rate may consistently overestimate or underestimate the future fed funds rates. To obtain a reliable estimate of the future fed funds rate, one must adjust the fed funds futures rate appropriately to account for the bias and past movements of the fed funds rate.

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Monetary policy
10.01.2001EC 10/1/2001

The views authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. The series editor is Tasia Hane. This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. This paper and its data are subject to revision; please visit clevelandfed.org for updates.

Suggested Citation

Nosal, Ed. 2001. “How Well Does the Federal Funds Futures Rate Predict the Future Federal Funds Rate?” Federal Reserve Bank of Cleveland, Economic Commentary 10/1/2001.

This work by Federal Reserve Bank of Cleveland is licensed under Creative Commons Attribution-NonCommercial 4.0 International