News & Events

IEM Opens Web-Based Futures Market for Fed Interest Rate Policy

The Iowa Electronic Markets (IEM) has opened public trading in a futures market on the Federal Open Market Committee's (FOMC) decision to raise or lower interest rates, or keep them unchanged.

Six professors in the University of Iowa Henry B. Tippie College of Business run the web-based, real-money market.

Opened Oct. 3, this market allows traders to buy and sell three contracts based on possible FOMC decisions to set the rate target for borrowing federal funds , which are: to raise the target, to lower it, or to leave it unchanged. After the FOMC announces the target at its Nov. 6 meeting, the corresponding contract earns $1, while other contracts earn nothing.

With an investment of as little as $5 or as much as $500, traders can participate in these markets. So far the IEM traders believe the FOMC will lower the target rate, with contracts for this decision at 94 cents, showing they believe there is about a 94 percent chance the FOMC will lower the target rate. After the Nov. 6 meeting, another market will start based before or during the Dec. 11 meeting.

The IEM directors set up the Fed funds market several years ago as an educational tool to teach students about finance, but decided to open it to a wider range of traders in order to gather more data on trader behavior.

Started in 1988, the IEM is a teaching and research laboratory at the UI Tippie College of Business. The UI professors have conducted several other political and business markets, including markets for the 2000 presidential elections, the New York Senate race, and Republican or Democratic control of the two houses of Congress. During the 2000 presidential elections, the IEM had 7,600 traders and more than $240,000 in equity.

The IEM also currently has markets on the outcome of the New York mayoral race and an academic-only market based on box-office receipts of "Monsters, Inc." and "Harry Potter and the Sorcerer's Stone." For more information, contact the IEM operations office at (319) 335-0794 or (319) 335-0881. Detailed trading information can be found on the IEM website at tippie.uiowa.edu/iem>.


Return to top of page