FOMC Week: Fed Fund Futures Curve

Tomorrow is the beginning of a 2-day FOMC meeting with a rate decision expected on Wednesday afternoon. All signs point to no change in the Fed Funds Rate, no hint at QE3, remaining accommodative for an extended period, a marginal downgrade in the economic outlook and a very boring press conference with the Chairman. Below is the Fed Funds futures curve via Pragmatic Capitalism:

Wall Street Journal - The FOMC has kept its funds rate target in a record low range of 0% to 0.25% since December 2008, and the market's time frame for an initial rate increase has been pushed back because of a recent rash of disappointing U.S. economic data.

At Friday's settlement, July 2012 fed-funds futures were unchanged, pricing in a 22% chance for the FOMC to raise the funds rate to 0.5% at its late June 2012 meeting. The same contract priced in a 50% chance on June 2, the day before data came out showing the nation's economy added only 54,000 jobs in May.

The outlook for higher fed funds in the future has continued to get pushed back further and further down the road as time has gone on. I see no evidence of this trend changing. The above statistics are telling us what Fed Fund futures are indicating right now, but this could certainly change going forward, probably getting pushed back even further.

Sources:

Rate Futures Report: Protection Sought Even as Implied Libor Falls (WSJ)

FOMC Meeting Preview: Another Snooze-Fest (PragmaticCapitalism)