Is the End Near?

The Chicago Board of Trade trades federal funds futures contracts. There is an "implied yield" in the contract that fluctuates on a daily or weekly basis. In other words, traders are betting on the future fed funds rate. This market is fully pricing a 25 basis point rate hike at the FOMC's meeting on 12/13, which will bring the fed funds rate to 4.25%, and a 75% chance of another 25 bp rate increase at the meeting on 1/31 -- Greenspan's last. The implied yield on the May 2006 contract closed at 4.61% on 11/25, which suggests the Fed's target rate will be between 4.50% and 4.75% by the middle of next year. Several forecasts have suggested the economy will cool off a bit in the second half of 2006, and interest rates will plateau.