By Jarad Ponce

Faculty Mentor: Dr. Don Lee

Abstract

The dynamics of Federal Funds Rate changes stand as a pivotal concern within economic discourse, shaping monetary policy decisions and influencing financial market behavior on a global scale. While conventional wisdom has long emphasized variables such as the inflation rate, GDP per capita (or GDP growth rate), and the unemployment rate as primary determinants of Federal Funds Rate adjustments, recent inquiries highlighted the potential predictive significance of securities types and indexes. This study seeks to delve deeper into this territory, moving beyond the confines of traditional metrics to uncover additional indicators that may offer insights into forthcoming shifts in the Federal Funds Rate by expanding the scope of analysis to include a broader array of financial instruments and securities indices, aiming to enrich understanding of the complex relationship between financial markets and macroeconomic variables, thereby contributing to accurate forecasts and enhanced portfolio management policy formulation. Moreover, this research builds upon the work laid out in “Daily Changes in Fed Funds Futures Prices” (Hamilton 2007), which explored the predictive power of long-duration treasuries, previous employment growth, and daily futures prices in estimating changes in the Fed Funds Rate, by extending and refining these analyses, endeavoring to offer insights into monetary policy dynamics and its implications for the broader economy.