Stuyvesant also wants to be prepared to answer general questions from the committee on the economy and financial markets. One member always asks her view on what the Federal Reserve Board (Fed) rate move is expected to be at the upcoming Federal Open Market Committee (FOMC) meeting. Stuyvesant prefers to infer the likely move from the market pricing of Fed funds futures. The current federal funds rate is 1.88%, and the Fed futures contract is priced at 98.33.
Which statement will Stuyvesant most likely make to the committee regarding expectations for the upcoming FOMC meeting? There is a(n):
- 86% probability of a 25 bp cut in the federal funds rate at the next meeting.
- 84% probability of a 25 bp hike in the federal funds rate at the next meeting.
- 100% probability of a 21 bp cut in the federal funds rate at the next meeting.
Solution
A is correct.
