What are the odds? option-based forecasts of FOMC target changes

RePEc Short ID: pne3
ORCID iD: 0000-0003-2852-9419

Emmons, William R.; Lakdawala, Aeimit K.; Neely, Christopher J.

Journal Article

What are the odds? option-based forecasts of FOMC target changes

Abstract: This article uses probability forecasts derived from options to assess evolving market uncertainty about Federal Reserve monetary policy actions in a variety of recent events and episodes. Options on federal funds futures contracts reveal a complete probability density function over possible Federal Reserve target rates, thus augmenting the expectations provided by federal funds futures contracts. Option-based forecasts are most useful when more than two federal funds target outcomes are plausible at an upcoming policy meeting.

Keywords: Forecasting; Monetary policy; Federal Open Market Committee;