Futures For You by Carley Garner
FORECASTING THE ECONOMIC PULSE
What are fed funds futures contracts? Can they be used to predict future Fed moves?
The federal funds futures are derivative contracts written with the target overnight bank lending rate of the Federal Open Market Committee (FOMC) as the underlying asset. Accordingly, contract expiration months are based on scheduled Federal Reserve (“Fed”) meetings, as opposed to the typical quarterly expiration in financial futures. Not unlike any other futures contract, fed funds futures contracts can be bought or sold in any order as a speculative tool to bet on, or hedge, expectations of changes in the Federal Reserve’s target interest rate.