Elevated Option-Implied Interest Rate Volatility and Downside Risks to Economic Activity

Posted: 16 Jan 2024

See all articles by Cisil Sarisoy

Cisil Sarisoy

Board of Governors of the Federal Reserve System

Date Written: December, 2023

Abstract

Measures of uncertainty about U.S. short maturity interest rates derived from options have risen sharply since October 2021, reaching their highest levels in more than a decade. This note first uses survey-based measures of economic uncertainty to argue that this increase in option-implied measures likely reflect higher uncertainty about inflation, the associated monetary policy response, and the perceived resulting downside risks to economic activity.

Suggested Citation

Sarisoy, Cisil, Elevated Option-Implied Interest Rate Volatility and Downside Risks to Economic Activity (December, 2023). FEDS Notes No. 2023-12-22, Available at SSRN: https://ssrn.com/abstract=4694834 or http://dx.doi.org/10.17016/2380-7172.3404

Cisil Sarisoy (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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