Fed Funds FuturesFFF
Fed funds futures are exchange-traded contracts whose price reflects the expected average federal funds rate in a given month. Traders use them to infer the market-implied probability of future Federal Reserve rate changes.
Fed funds futures are exchange-traded contracts tied to the average federal funds rate in a given month. Because their price moves with rate expectations, traders and journalists use them to estimate the odds of Federal Reserve rate changes. Reading them well means knowing the price formula and its limits.
- Category
- Derivatives
- Reading time
- 4 min
- Also called
- Federal funds futures, 30-day fed funds futures, Fed funds rate futures
- Updated
Fed funds futures in plain words
Fed funds futures pay out based on the average effective fed funds rate over the contract month, which makes them a popular gauge of where markets expect policy to go.1
They settle at 100 minus that average rate — an average of 0.50% means a price of 99.50.1
Their prices track expectations for the Fed's target rate closely, which makes them useful for policy analysis.2
How to read rate expectations
Pick the contract month
Choose the month after the next Federal Open Market Committee meeting you care about.
Convert price to rate
Convert price to rate: implied rate = 100 − futures price (a price of 99.50 means 0.50%).1
Compare with today's rate
The difference shows how much change is priced in.
Adjust for meeting timing
If a meeting is mid-month, only part of the month reflects the new rate.
Turn into odds
Divide the priced change by the size of one move, such as 0.25 points.
Cross-check
Compare with tools such as the Atlanta Fed's tracker, which turns futures into odds for different rate ranges.3
Worked examples
Example 1 — Price to rate
4.40% impliedA hypothetical contract trades at 95.60.
| Implied average rate | 100 − 95.60 = 4.40% |
Subtract the price from 100 to get the implied average rate.1
Example 2 — Rate cut odds
About 40% chance of a cutHypothetical current rate 4.50%; the contract for the month after a meeting implies 4.40%. One cut is 0.25 points.
| Priced change | 4.50% − 4.40% = 0.10 |
| Implied odds | 0.10 ÷ 0.25 = 40% |
Treat these odds as rough, because futures prices also contain a term premium, not just expectations.1
Example 3 — Hedging a loan
$1,250.10 gainA hypothetical firm fears higher rates and sells a contract at 95.50; it later trades at 95.20. Each 0.01 move is worth $41.67 per contract.
| Move | 95.50 − 95.20 = 0.30 = 30 × 0.01 |
| Gain | 30 × $41.67 = $1,250.10 |
Listed on the CBOT since the late 1980s, these contracts are a long-standing hedge against short-term rate moves.2
Fed funds futures vs SOFR futures
| Aspect | Fed funds futures | SOFR futures |
|---|---|---|
| Reference rate | Effective federal funds rate | SOFR |
| Main use | Near-term Fed policy odds | Broader funding rate hedging |
| Price formula | 100 − average rate | 100 − rate |
| Typical horizon | Next few meetings | Months to years |
Who uses fed funds futures
Reading Fed odds
Gauge what markets expect from the Federal Reserve.
Hedging short-term rates
Banks and firms hedge Interest Rate risk.
Macro trading
Position for changes at the Federal Open Market Committee.
Comparing benchmarks
Check against SOFR futures and Treasury Bills, Notes and Bonds yields.
Advantages and disadvantages
Advantages
- Simple price-to-rate formula.
- Deep, long-running market.
- Shows market expectations in real time.
- Useful hedge for short-term rate risk.
Disadvantages
- Implied odds include a term premium, not pure expectations.
- Meeting timing inside a month complicates math.
- Odds can swing sharply on one data release.
- Liquidity is thinner in far-out months.
Going deeper
Read as far as you need. Each level builds on the one before it.
Why 100 minus price
Beginner
Settlement is 100 minus the month's average rate.1 A higher price means a lower expected rate.
Term premium
Intermediate
Prices mix expectations with a term premium, so they are not a pure forecast.1 Treat market odds as an estimate, not a forecast.
Premium by horizon
Advanced
Research suggests term premiums at the short end don't grow in a straight line with the horizon.4 Odds for distant meetings need bigger adjustments than near ones.
Common mistakes
Reading price as the rate
Subtract the price from 100 first.
Ignoring meeting dates
A late-month meeting affects only a few days of the average.
Treating odds as certain
Market odds include risk premiums and change fast.
Using the wrong month
Pick the month after the meeting, not before.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Fed funds futures track the average federal funds rate for a month.
- Implied rate equals 100 minus the price.
- Traders turn prices into rate-change odds.
- Term premiums make odds imperfect.
- They are a long-standing hedge for short-term rates.
Frequently asked questions
Where do rate-hike odds in the news come from?
Who can trade fed funds futures?
How far ahead do they go?
Further learning
- Federal Open Market Committee
The meetings these contracts price.
- Federal Reserve
Who sets the target rate.
- SOFR
A related rate benchmark.
- Interest Rate
How rates move markets.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Federal Reserve Bank of New York (Liberty Street Economics). Interest Rate Derivatives and Monetary Policy Expectations (opens in a new tab) Checked .
- Board of Governors of the Federal Reserve System. Using Federal Funds Futures Contracts for Monetary Policy Analysis (FEDS 2005-29) (opens in a new tab) Checked .
- Federal Reserve Bank of Atlanta. Market Probability Tracker (opens in a new tab) Checked .
- Board of Governors of the Federal Reserve System. Front-End Term Premiums in Federal Funds Futures Rates and Implied Probabilities of Future Rate Hikes (FEDS Notes) (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.