Financial encyclopedia

Is it accurate to predict that the Fed will raise interest rates, cut interest rates and raise interest rates?

This week will usher in the first FOMC interest rate meeting in 2024, and the expected interest rate of the market will remain unchanged at 5.5%. Investors can make predictions through FedWatch before the results of interest rate negotiation are announced.

What is FedWatch?

FedWatch is a tool website of Chicago Mercantile Exchange (CME Group), which is mainly used to analyze the possibility of adjusting interest rates at FOMC's future meetings.

How does FedWatch calculate?

CME uses the Federal Funds Future, that is, it uses the expectation of interest rate in the trading market to calculate the probability of interest rate increase or decrease.

Subtract the futures price from 100 to get the implied interest rate of the current month.

Subtract it from the current benchmark interest rate and you can get the spread.

Finally, divide the spread by 1 yard (0.25%)

You will get the probability of increasing and decreasing interest rates in that month.

Is FedWatch accurate in forecasting?

According to historical data, it is predicted that the probability of raising interest rates from 2016 to 2019 is as high as 80%, and the interest rate trend has indeed been upward. After the second quarter of 2019, it is expected that the probability of reducing interest rates will be as high as 100%, and the actual interest rate trend is also highly accurate as a whole.

The official website of CME also contains the Fed bitmap, so that users can clearly understand the expectations of all FOMC members on the Fed target interest rate and can easily find out the probability of raising interest rates and lowering interest rates in the next few FOMC meetings, which is a leading indicator worthy of reference.