How Do Financial Markets Perceive the Balance of Risks to the Policy Rate?

Brent Bundick, Taeyoung Doh and Andrew Smith

Economic Bulletin, 2024, 4

Abstract: We introduce a new measure of policy rate skew that uses interest rate options prices to summarize market-perceived risks to future short-term interest rates. A positive value of policy rate skew indicates financial markets believe interest rates are more likely to end up higher than projected, whereas a negative value suggests rates could end up lower than projected. As of October 2024, our measure of policy rate skew is near zero, suggesting market-perceived risks to the interest rate outlook are roughly in balance.

Keywords: Kansas City Policy Rate Uncertainty index (KCPRU); financial markets; policy rate; interest rates; forecasting; Federal Open Market Committee (FOMC) (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.kansascityfed.org/documents/10636/Econ ... dickDohSmith1220.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedkeb:99292

Ordering information: This journal article can be ordered from

Access Statistics for this article

More articles in Economic Bulletin from Federal Reserve Bank of Kansas City Contact information at EDIRC.
Bibliographic data for series maintained by Zach Kastens ().