Bloomberg writes "Money Markets Signal Fed Rise in 2013, Credit Suisse Says". The article says, "Money-market derivatives signal traders expect the Federal Reserve will most likely lift its target rate for overnight loans between banks in the second quarter of 2013, according to Credit Suisse Group AG analysis. The chance the Fed will begin raising borrowing costs as early as 2012 is 12 percent, while an initial increase in 2013 or 2014 each carries a 24 percent probability, Credit Suisse analysis using a gamma probability distribution of forward overnight index swap rates shows. Treasury yields surged and money-market rates rose after Federal Open Market Committee members raised their assessment of the U.S. economy on March 13 while reiterating that borrowing costs would probably stay low through at least late 2014. The policy statement led money-market derivative traders to bring forward the time when they predict the Fed will first lift its target of zero to 0.25 percent." Bloomberg quotes Carl Lantz, head of interest-rate strategy at Credit Suisse Securities, "If you take the pricing in the futures market at face value, it shows a gradual increase in the fed funds rate starting in 2013. However, the futures only show an average of many possible paths for fed funds. Our model and the use of the gamma distribution allow us to tease out the implied path that is most likely."
