Forecasting · 2025–2026
Forecasting the Effective Federal Funds Rate
Can a model forecast the federal funds rate better than repeating last month's rate?
I compared Ridge and Random Forest with a baseline that repeats last month's rate. My first pipeline let information from the holdout period leak into training, so I rebuilt it, locked the design, and only then tested it on 114 later months.
Result: Ridge cut RMSE, a standard forecast-error measure, by 16% (0.1606 vs. 0.1922). Its gain on a second error measure, MAE, was much smaller.




