Federal Reserve Interest Rate Forecast

How We Calculate the Forecast

1. Start with the SOFR forward curve‍

We use the overnight index swap (OIS) market to see what rate traders expect the Federal Reserve’s policy rate to be in the future.

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2. Look at the 30 days after the next meeting ‍

The OIS curve gives us a smooth line of forward-looking rates. We take the average rate over the 30-day period following the next Federal Reserve meeting.

This 30-day window captures the market’s expectation for the steady-state rate after the decision, providing a more stable and reliable estimate than looking at a single day.

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3. Compare it to today’s rate

We then compare the implied post-meeting rate to today’s policy rate.

If the forward rate is higher, markets are leaning toward a rate hike.

If it’s lower, they’re leaning toward a cut.

If it’s nearly the same, markets expect no change.

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4. Translate that difference into probabilities

Because the Federal Reserve typically moves in 25-basis-point steps, we can turn the size of the difference into probabilities.

For example, if the 30-day forward rate is 5.06% and today’s rate is 5.00%, that’s about a 24% chance of a 25-bp hike.

We take the forward rates directly from the SOFR forward curve, which reflects market expectations for future overnight funding rates. These forward rates are then mapped directly to the implied central bank policy rate at each future date, assuming that market pricing in the OIS curve accurately represents expectations for the policy path.

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The table includes:

• Date – the point in time for each forward rate observation.
• Forward Rate – the rate implied by the SOFR forward rate for that period.
• Implied Central Bank Rate – the corresponding rate mapped directly from the forward curve.
• Change from Current – the difference in basis points between the implied future rate and the current central bank policy rate.