Bankers get this question a lot – from customers, investors, and our bank boards. There are seemingly endless experts out there with an opinion based upon their assessment of the latest economic data, world events, and the psychology of the individual Fed governors. Sorting through and reflecting on all these voices can be quite challenging even to professionals.

One of the most important voices worthy of attention is the market itself. The futures market reflects not only market expectations of a whole host of commodities like oil, cattle, and gold but also for many other asset classes including interest rates. The Fed Funds Futures market can be confusing to interpret, however, as the forward prices of the contracts reflect the probability of potential multiple fed rate moves of differing magnitudes. We simply want to know when the Fed will increase rates and by how much for each Fed meeting.
Fortunately, the statistical analysis of this futures market has been done and kindly shared by the Chicago Mercantile Exchange.


This website is updated frequently to reflect market views. As of this writing, the market is reflecting an 81% probability that the Fed will increase rates at the Dec 15th meeting and a 98% probability that there will be a rate increase by the Fed over the next 12 months.

So the market is currently telling us that a rate increase this year is likely. However, it is also telling us that rate increases in 2016 should be modest and slow in coming. Most market participants think the Fed will raise rates in December and then only once or twice more during 2016 (the website will show you the probability distribution at each Fed meeting). So if you are a borrower, you should continue to enjoy low rates for the next 12 months. If you are a depositor that is not welcome news, but several banks that tend to take the long view have increased rates in the longer term CDs. For example, we increased our five year CD rate from 1.10% to 1.50% APY while keeping our loan rates at very attractive levels.

We hope this market information helps you filter some of the pundit noise.

About the Author: Clinton Gerst is the President of the Bank of Bozeman, an Independent Community Bank in Bozeman, Montana.
This article is provided for educational and informational purposes only, without any express or implied warranty of any kind, and should not be considered legal or financial advice. All expressions of opinion reflect the judgment of the author as of the date of writing and are subject to change. You should consult with an attorney or other professional to determine what may be best for your individual needs.