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Monetary policy and financial market expectations: what did they know and when did they know it?


  • Michael R. Pakko
  • David C. Wheelock


Interest rates sometimes seem to respond to Federal Reserve policy actions in unexpected ways--for example, falling when the Fed " tightens" monetary policy or rising when the Fed "eases" policy. In this article, Michael R. Pakko and David C. Wheelock attempt to demystify such responses. They show how trading in the federal funds futures market reveals public expectations of Federal Reserve actions, and how our knowledge of these expectations can help us interpret the behavior of interest rates.

Suggested Citation

  • Michael R. Pakko & David C. Wheelock, 1996. "Monetary policy and financial market expectations: what did they know and when did they know it?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 19-32.
  • Handle: RePEc:fip:fedlrv:y:1996:i:jul:p:19-32:n:v.78no.5

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    References listed on IDEAS

    1. Bennett T. McCallum, 1987. "The case for rules in the conduct of monetary policy: a concrete example," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 10-18.
    2. Evans, Martin & Wachtel, Paul, 1993. "Inflation Regimes and the," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(3), pages 475-511, August.
    3. Charles T. Carlstrom, 1995. "A monetary policy paradox," Economic Commentary, Federal Reserve Bank of Cleveland, issue Aug.
    4. Michael J. Dueker, 1993. "Indicators of monetary policy: the view from implicit feedback rules," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 23-40.
    5. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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    Cited by:

    1. John C. Robertson & Daniel L. Thornton, 1997. "Using federal funds futures rates to predict Federal Reserve actions," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 45-53.
    2. Söderström, Ulf, 1999. "Predicting monetary policy using federal funds future prices," Working Paper Series 85, Sveriges Riksbank (Central Bank of Sweden).
    3. O. David Gulley & Jahangir Sultan, 2011. "Economics, politics and the federal funds markets: does the Fed play politics?," Applied Financial Economics, Taylor & Francis Journals, vol. 21(14), pages 1005-1019.


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