Wed 2 Aug 2006
You’ve probably heard something like this floating around before,
Fed Funds Futures are currently pricing in about a 36% chance for a 25 basis point Fed Funds rate hike next week to 5.5%.
Ever wondered what they mean by that and how they get that number?? Well here is an explanation by the Fed themselves.
Personally, after considering the arguments, I think this number is a little extreme and I’m expecting a rate hike next week.??Though it should be noted that never has the Fed raised rates when the futures were calling for this low of a probability.? But those are different Feds.? Ben is not Alan, is he?? If faced with slowing an already slowing economy or fighting inflation,?essentially the choice is is facing,?which do you think he would pick?? As?one blogger said,
Mr. Bernanke is an inflation targeter. He wrote a book on it and explained its benefits. I’m inclined to believe that he’s likely to pursue that very policy now that he is sitting in the driver’s seat of the U.S. economy. He’ll get his one chance to show America the benefits of containing inflation within a tight comfort band. You don’t write a book one day expounding the benefits of a policy, then get nominated to the one position that allows you to implement that policy and not go through with it. I can’t imagine there was a change of heart since all the way back in 2001…. especially since the former Fed chairman was implementing policies of his own that led to overheated inflation at the time of the writing of the book. I’m almost wondering if he was sitting there stewing in his juices watching in disbelief as policy was unfolding.
Ah, there is nothing like a good common sense argument.? No data, no charts.? Just a decent?observation of human nature.? With inflation going up as of the latest numbers, he basically has to raise rates to live up to his own expectations.
August 2nd, 2006 at 2:01 pm
I like the page from the Cleveland Fed… I had actually tried to calculate the probability based on the prices on the CBOT website… not very easy.