Before the weak employent report of the 10 Jan 2014, traders expected the fed funds rate to average 0.45% in June 2015. That estimate is based on price movements in the June 2015 fed funds futures contract. Put another way, traders saw a high probability that the Fed would start a rate hike campaign by mid-2015. Now the expected fed funds rate in June 2015 is 0.265%, meaning a low probability of a Fed rate hike by then. This is an especially dramatic shift from last September, when the expected fed funds rate in June 2015 was 0.92%, which meant futures traders thought the Fed would already be a few rounds into a rate hike campaign by mid-2015.
Remember FED officials have been hammering home the message that “tapering isn’t tightening.”
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