What do Fed Funds Futures tell us about Monetary Policy Uncertainty
59 Pages Posted: 17 Feb 2009 Last revised: 5 Jan 2017
Date Written: October 15, 2016
The uncertainty around future changes to the Federal Reserve target rate varies over time. In our results, the main driver of uncertainty is a ``path'' factor signaling information about future policy actions, which is filtered from federal funds futures data. The uncertainty is lowest when the path factor signals a loosening cycle and highest when it signals a loosening cycle. The uncertainty raises the risk premium in a loosening cycle, reducing the transmission of target changes to longer maturities. Our results trace the information content of federal funds futures to hedging demand.
Keywords: Interest Rates, Futures, Monetay Policy, Expectations
JEL Classification: E43, E44, G12, G13
Suggested Citation: Suggested Citation