Does Fed Funds Futures lead the FED or Vice Versa?

Discussion in 'Economics' started by empee, Nov 15, 2007.

  1. empee


    ... and what happens if we don't get the 100% chance of a cut at the next meeting. I wonder if "traders" are trying to press their bets by leading the FED by the nose .. pricing in rate cuts thinking the FED doesn't have the cojones to NOT do what FF say.

    Which leads which, since FF has been a reliable indicator of FED activity.

  2. Good question/thread!

    Fed Funds are as close to spread betting as trading gets. The Fed is like the team on the field. Will they cover or won't they. IMO the Fed looks intensely at the entire yield curve. If Fed Fund futures were the only fixed income instrument seeing a bid then perhaps the Fed would argue that the market's expectations of further inflation remain high. Weirdly that hasn't been the case. although the curve has steepened 30 year yields haven't been above 5% more than a couple of hundred days out of the past couple of thousand. The Five Year is trading at 3.76%!!!!!!!

    One question for the hawks on ET. Do you think there's WAGE inflation? Without wages moving higher it's all moot.......
  3. Don't quote me on this; but i think YoY 0.3% raise in wages is pretty average number.

    Checking my local government worker's new contract is about 9% over 5 years.

  4. If the Fed disagrees with Fed Fund Futures (FFF) then they can guide FFF up or down with Fedspeak - unless they intentially want to shock the market like when they do suprise cuts and when they cut 50bp to blow up the bears.

  5. There is no wage inflation due to: more global competition, H1Bs, an open border, outsourcing etc.

    I don't disagree with you, I think you are echoing the conventional wisdom of the Fed and Wall Street. The thinking goes since labor is by far the largest cost of doing business so long as we can keep wages down and inflate everything else - all is good. It is an ingenious way to screw America; it doesn't matter how high the cost of living goes due to rising food&energy&commodity costs so long as wage increases are kept down to negligible levels.
  6. They have been trying this for the last month, the market has been refusing to listen and only picks out small soundbytes when the manner suits their own scenario.

    Some of us have heard - loud and clear - that the Fed is not committed to lowering rates at this point any further. The market continues to think that this is the probability - not just a possibility.

    The market will have to come to terms with this eventually, and there will be weeping and gnashing of teeth.