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June 1977

The Treasury Bill Futures Market and Market Expectations of Interest Rates

by Albert E. Burger, Richard W. Lang, and Robert H. Rasche

Economists and other analysts seek to measure expectations of future interest rates because such expectations have important effects on economic behavior. Changes in expectations can lead to changes in economic activity, both at the level of the individual firm or consumer, and at the level of the national economy. For example, interest rate expectations enter into investment decisions of firms, portfolio decisions of financial intermediaries and other investors, and borrowing decisions of state and local governments. If these groups alter their expectations of the future level of interest rates, changes in investment, portfolio, and borrowing decisions will occur which affect not only each group individually, but which also affect the level of economic activity in the economy as a whole.