Future Interest Rates

We are often asked where to find the market expectations for stock returns. While there is no easy answer to that question, the market expectations on future interest rates are much easier to find. Recent comments by Janet Yellen indicated that there was a low probability of an increase in the Fed Funds rate. As the article indicates, the probability that interest rates will increase can be can be seen by Fed Funds futures, If you are not familiar with futures contracts, they are contracts traded and priced today that will be executed at some point in the future. Although there is more that goes into futures prices, futures prices can be used, in part, as the market expectation of the future price. And to show you how quickly markets can adapt, when the original Yahoo! Finance article was written, the probability that the Fed would raise interest rates by February 2017 was about 27 percent. As this is written, one day later, the probability has dropped to 6 percent.