While there was been a lot of talk about when the Federal Reserve would actually begin tightening, the prevailing wisdom had the Fed moving in a relatively tight window. The thought was the Fed would begin tightening by mid-2015.

While positive economic news has led some to speculate it may be sooner and negative news that it would be later, the market pretty much locked into mid-2015 to year-end range.

The question is: How will the current market downturn affect the Fed’s plans? The answer, according to Fed Fund futures, is pretty dramatica. As recently as mid-September, the Fed Fund futures traded at the Chicago Board of Trade priced in a near certain 25-basis point increase in its September 2015 contract (see chart below). That is, the market expected the Fed Funds rate to be around 50 basis points (or 0.5%) at the end of September 2015. There was roughly a 50/50 chance in the July 2015 contract for a quarter point increase.

Since the recent downturn, Fed Fund futures have rallied. As of today the market does not expect any tightening by September of 2015 and has priced in only a 50/50 chance of any tightening in 2015 (see December 2015 contract (red bar)).

Looking out to mid-2016, the June contract indicates a probability (but not a certainty) that rates may be as high as 0.75%.

While most of the economic news during the past year has been positive, it has not affected the market expectations of Fed Funds.

Looking back further (see chart below) we can see that in September 2013 that Fed Funds futures priced in a Fed Funds rate for September 2015 of more than 1%. For the end of 2015, the market priced in a rate of nearly 1.5% and the expected funds rate for June 2016 was greater than 2%.

Jim Rogers, in his recent interview in the October issue of Futures, indicated that he didn’t expect the Federal Reserve to allow a market correction and would once again delay unwinding and take accommodative action. Looks like the market agrees with Rogers.