This tool estimates the market-implied probabilities of various ranges for the three-month average fed funds rate. Our methodology uses data on three-month Eurodollar futures, options on three-month Eurodollar futures from the Chicago Mercantile Exchange (CME), three-month LIBOR/fed funds basis swap spreads expiring in 12 months, and the Treasury yield curve.
Estimates from the four-nearest quarterly expiring contracts are updated daily using the previous day's closing prices. To illustrate changes in the market's assessment of the average fed funds rate over future three-month intervals, users can view and compare estimates from the prior six weeks for individual contracts. In this tracker we provide the path the market expects the three-month average fed funds rate to take, along with the 25th to 75th percentile region; the probability of a 25 basis point rate hike or cut for the three-month interval starting on the contract's expiration date; and how likely market participants are assessing various future outcomes, distributed across a wide range of possible rates.
Use the options below to change the observation date(s) and contract you'd like to view.
What is the Secured Overnight Financing Rate (SOFR)?
The Secured Overnight Financing Rate, or SOFR, is the Alternative Reference Rates Committee's replacement for the US dollar London Interbank Offer Rate, or USD LIBOR, as the market's key benchmark rate on US dollar-denominated securities. It represents the broad cost of overnight (one-day) loans, called overnight repurchase agreements, or simply "repo," that are collateralized with US Treasury securities.
How is SOFR calculated?
The Federal Reserve Bank of New York calculates SOFR each day using transaction-level data from the Bank of New York Mellon on overnight, specific-counterparty tri-party general collateral repo transactions secured by Treasury securities, along with GCF Repo transaction data obtained from the US Department of Treasury's Office of Financial Research. For more complete information about SOFR’s administration, along with detail about the transactions included in the calculation, please visit the New York Fed's website.
What are SOFR futures and options on SOFR futures?
SOFR futures are derivative contracts that deliver the equivalent overnight repo-based financing across specific future quarterly windows. The rate associated with a futures contract—the three-month compounded average SOFR—is based on the market's expectation of the cost of Treasury repo financing each day throughout the contract’s indicated reference quarter.
Options on SOFR futures are derivative contracts that give the holder the right, but not the obligation, to buy or sell SOFR futures expiring on (or before) a specific date for a specific price, called the strike price. The price of an option, called the option premium, is based on where the market expects the cost of overnight Treasury repo financing will be relative to the option’s strike price once the option expires. Thus, option premiums contain information about the probability that SOFR, over the three months indicated in the contract’s reference quarter, will be either above or below the strike price specified in the option contract at expiration.
Both SOFR futures and options on SOFR futures are traded on the Chicago Mercantile Exchange. For more detail about the contract specifications, please visit the CME's website.
What impact do FOMC decisions have on SOFR?
Federal Open Market Committee decisions affect SOFR through the New York Fed's Open Market Trading Desk's (the "Desk's") implementation of monetary policy. Operationally, the Desk is authorized to conduct repurchase transactions with its primary dealers and other eligible financial institutions to apply downward pressure on the federal funds rate and to reverse repurchase agreements to apply upward pressure on the federal funds rate. The Desk also has the authority to conduct unscheduled repurchase transactions should conditions warrant them. Together, these actions can help maintain the federal funds rate within the FOMC's target range and support smooth market functioning. The rates at which repo and reverse repo transactions are conducted are reflected by SOFR.
For more information about the Desk's monetary policy implementation, please visit the New York Fed's website.
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