How to calculate fed funds rate probabilities from futures prices

The formula

The implied probability of a rate change at an FOMC meeting can be calculated from Fed Funds futures (ZQ contracts) using a day-weighted average formula.

For the current-month contract: Implied Rate = 100 - Futures Price. The probability of a 25bp cut is: P = (Current EFFR - Implied Rate) / 0.25.

Worked example

Suppose the effective Fed Funds rate is 5.33% and the current-month ZQ futures settle at 94.80. The implied rate is 100 - 94.80 = 5.20%. The probability of a 25bp cut to 5.00-5.25% is: (5.33 - 5.20) / 0.25 = 52%.

Or skip the calculation entirely

Quadesto's FedWatch tool does this automatically from live futures data. Upload your own ZQ prices or use the live feed.