What do the Markets Think About the Fed Funds Rate?

Financial journalists continue to speculate on when the Federal Reserve’s Federal Open Market Committee (FOMC) will increase its target range for the Federal Funds Rate (FFR), the benchmark overnight rate. This speculation has gone on for years, as the U.S. has experienced near-zero short-term rates since the Great Recession. The question often arises: “Interest rates have to increase so shouldn’t the fixed income portion of my portfolio hold short-term bonds?” Owing primarily to the fact that there is not much room for interest rates to further decrease, it does seem likely that interest rates will eventually have to increase. But for a portfolio adjustment to be prudent, an investor must also know when the change will happen and by how much. So what does market data say about future short-term interest rates?