Fed Fund Futures

Hello,

I have another question!

I hear on the news that the market has priced a 80% chance of a fed rate cut of 50 bps, or something like that. How do I find that out by looking at the fed funds futures contract?

According to CBOT.com, the April Fed Funds Futures contract closed today at 97.88. That means they are predicting that the fed funds rate will be at 2.12% (100-97.88). But, how do you calculate the probability? Is it a 25% chance of that happening? 50%? 100?

Thanks for your help.

-Daytrader85

 

To me that says theyre predicting a 50/50 shot at either 2% or 2.25%

 

CBOT.com shows that the May contract closed at 97.9450.

So, does that mean there is a 80% chance of the Fed lowering rates to 2.00%?

 

This is what I look at every morning. Easily generated charts by the Cleveland Fed based on OPTIONS on Fed Fund Futures.

http://www.clevelandfed.org/research/data/fedfunds/index.cfm