Previous FRED Blog posts have discussed how to measure economic and financial uncertainty. Some measures are based on news coverage from a large set of U.S. newspapers, and others are calculated using the prices of financial derivatives. Today, we measure interest rate uncertainty based on daily financial data.

Our FRED graph above shows the past five years of daily values of the Kansas City Fed’s measure of policy rate uncertainty (KC PRU). The authors describe the index as “the uncertainty around one-year-ahead interest rates.” Higher index values imply that investors trading financial derivatives hold more disparate expectations about future financial conditions. In other words, when the index rises, the range of possible future financial outcomes is broadening, signaling increased uncertainty.

Data are available since April 1, 1989, and could be used to study how investors react to news about monetary policy: Federal Open Market Committee announcements, changes in Fed communication strategies, and many other financial market events.

How this graph was created: Search FRED for and select “Kansas City Fed’s Measure of Policy Rate Uncertainty” and start the sample period on 2020-06-01.

Suggested by Diego Mendez-Carbajo.