I regularly receive email commentary from Fimat USA's Stan Jonas, the Obi-Wan-Kenobi of options on federal funds futures. Today, Stan had this to say:
ITS EARLY IN THE SEASON BUT ALREADY TRADES ARE SETTING UP THAT ACTUALLY PAY ONE TO TAKE ON THE BET THAT THE FED IS GOING TO SKIP JANUARY...
Our usual Carlson-Craig-Melick estimates of the federal funds probabilities did show some softening in the sentiment for an uninterrupted trek toward 4-1/2 percent by the end of January. November still looks like a lock for another 25 basis points...
... and expectations are holding steady for another hike in December:
But, perhaps due to last week's moderation in oil and gas prices, some second thoughts began to emerge about January:
The data, for you to ponder:
Download implied_pdf_november_102105.xls
Download implied_pdf_december_102105.xls
Download implied_pdf_january_102105.xls
Download Imp_pdf_slides_for_blog_102105.ppt
UPDATE: The Capital Spectator says:
A day after Ben Bernanke was named successor to Alan Greenspan, traders of Fed fund futures reminded the Fed chairman-nominee that interest rates should keep rising well into next year... the price of the the April 2006 contract dropped today in anticipation of Fed funds rising to around 4.5% by next spring.