Fed funds futures and the news

The objective of this paper is to determine whether the observed variation in the response of market interest rates over the 1990s to the news about employment is a result, at least in part, of changes in expectations for monetary policy. Fed funds futures rates, which embody predictions for the expected monthly average of the daily effective funds rate, are used to capture market participants' expectations for monetary policy in the face of employment surprises. It is found that unanticipated employment announcements have a positive and statistically significant impact on one- and three-month-ahead fed funds futures rates and the size of the impact declines over the 1990s, thereby coinciding with a noticeable decline in the frequency of adjustment in the fed funds target rate.