How was this 67% probability calculated from Fed funds futures?
Fed funds futures show a 67 percent chance the central bank will increase its benchmark rate by year-end from virtually zero, according to data compiled by Bloomberg. The central bank last raised the rate in 2006.
Answer
I am not sure how that probability was computed. However, the standard approach is to use fed futures to proxy for the "unexpected change" of FED rate. The most prominent reference is Bernanke and Kuttner (2005).
What they do, is to estimate the unexpected FED target rate change by doing: $$\Delta i^u = \frac{D}{D-d}(f_{m,d}^0-f_{m,d-1}^0)$$
where $f_{m,d}^0$ is the current month future rate and $D$ is the number of days in the month.
The extension to probability of change is given in Geraty (2000).
Where he basically estimates the probability $p$ of change by doing: $$p=\frac{\text{Fed funds rate implied by futures contract} - \text{The current fed funds rate}}{\text{Fed funds rate assuming a rate hike} - \text{The current fed funds rate}}$$
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