Journal Article
How Do Financial Markets Perceive the Balance of Risks to the Policy Rate?
Abstract: We introduce a new measure of policy rate skew that uses interest rate options prices to summarize market-perceived risks to future short-term interest rates. A positive value of policy rate skew indicates financial markets believe interest rates are more likely to end up higher than projected, whereas a negative value suggests rates could end up lower than projected. As of October 2024, our measure of policy rate skew is near zero, suggesting market-perceived risks to the interest rate outlook are roughly in balance.
Keywords: Kansas City Policy Rate Uncertainty index (KCPRU); financial markets; policy rate; interest rates; forecasting; Federal Open Market Committee (FOMC);
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https://www.kansascityfed.org/documents/10636/EconomicBulletin24BundickDohSmith1220.pdf
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Bibliographic Information
Provider: Federal Reserve Bank of Kansas City
Part of Series: Economic Bulletin
Publication Date: 2024-12-20
Pages: 4