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Richard K. Crump, Stefano Eusepi, and Emanuel
Moench
Following the June 18-19 Federal Open Market
Committee (FOMC) meeting different measures of short-term interest rates
increased notably. In the chart below, we plot two such measures: the two-year
Treasury yield and the one-year overnight indexed swap (OIS) forward rate, one
year in the future. The vertical line indicates the final day of the June FOMC
meeting. To what extent did this rise in rates following the June FOMC meeting
reflect a shift in the expected future path of the federal funds rate (FFR)?
Market participants and policy makers often directly read the expected path
from financial market data such as the OIS contracts. In this post, we take an
alternative approach by looking at surveys of professional forecasters to
assess how expectations changed.
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