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Fed Fund futures contracts are based on the EFFR rate as reported by the FR. Contracts are listed monthly, extending 36 months or three years out on yield curve. Fed Fund futures are traded in IMM index terms, that is, as a price rather than a rate. The price is simply the implied rate subtracted from 100.
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.
At final settlement, Fed Fund futures are cash-settled, there is no physical delivery involved. The final settlement calculation at expiry is the total of all the daily rates published by the FR divided by the total number of days in that month.
Effective Federal Funds Rate is at 5.33%, compared to 5.33% the previous market day and 4.83% last year. This is higher than the long term average of 4.60%.
Fed Leaves Rates on Hold, Indicates Three Rate Cuts in 2024 PCE inflation forecasts were kept unchanged for 2024 (2.4% vs 2.4%) but were raised for 2025 (2.2% vs 2.1%) while the core rate is seen higher this year (2.6% vs 2.4%) while forecasts were left unchanged for 2025 at 2.2%.
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Last Updated 06 Apr 2024 19:13:03 PM CT. 30-Day Fed Funds futures and options are one of the most widely used tools for hedging short-term interest rate risk. Fed Fund futures are a direct reflection of collective marketplace insight regarding the future course of the Federal Reserves monetary policy.
Fed funds futures are often used by banks and portfolio managers with the goal of hedging against inflation in a short-term market.
Interpreting the Implied Probability of Rate Hikes - The Fed Funds Futures Contracts price reflects the markets prediction of the probability of a rate hike. The higher the price of the futures contract, the higher the implied probability of a rate hike.

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