After the Federal Open Market Committee (FOMC) decided in June to leave the intended federal funds rate unchanged, and a subsequent data release showed that the economy may be slowing, market participants lowered their expectation that the rate would be increased at the FOMC’s August 22 meeting. On June 1, the August contract was trading 28 basis points (bp) above the current federal funds target rate of 6.5%, indicating that market participants considered a rate increase likely. By July 3, the implied yield on the August contract had dropped to 6.64%, 14 bp above the target rate; it hovered near there until July 20, when FOMC Chairman Alan Greenspan appeared before Congress. As of July 27, the August contract was trading at 6.58%, only 8 bp above the target rate.
Suggested citation: "Monetary Policy," Federal Reserve Bank of Cleveland, Economic Trends, no. 00-08, pp. 02-05, 08.01.2000.