Minutes From The January 31, 2006 FOMC Meeting Were Released Today; Rate Increase Likely @ The End of March

The minutes from the January 31, 2006 Federal Open Market Committee (FOMC) meeting were released earlier today. Here's a snippet from those minutes:

"...In the Committee's discussion of monetary policy for the intermeeting period, all members favored raising the target federal funds rate 25 basis points to 4-1/2 percent at this meeting. Although recent economic data had been uneven, the economy seemed to be expanding at a solid pace. Members were concerned that, even after their action today, possible increases in resource utilization and elevated energy prices had the potential to add to inflation pressures. Although the stance of policy seemed close to where it needed to be given the current outlook, some further policy firming might be needed to keep inflation pressures contained and the risks to price stability and sustainable economic growth roughly in balance. In the view of some members, the possibility of additional policy moves was reinforced by readings on core inflation and inflation expectations that were somewhat higher than was desirable over the long run. However, all members agreed that the future path for the funds rate would depend increasingly on economic developments and could no longer be prejudged with the previous degree of confidence..."

According to the latest economic indicators, the economy is doing well; crude oil prices are on the rise again, and with The Fed concerned about inflation, economists, bankers and investors are all betting that at least one more 0.25 percentage point increase to the Federal Funds Target Rate is coming when The FOMC meets on March 28, 2006. (that would, of course, translate to a 0.25 percentage point increase to the U.S. prime rate, a.k.a. the published Wall Street Journal® prime rate.)

The folks who trade in Fed Funds Futures are now predicting (according to current pricing) a 98% chance that The FOMC will raise The Fed Funds Rate by another 25 basis points (0.25 percentage points) when The FOMC meets at the end of March.

The March 28^TH FOMC meeting will be the second FOMC meeting for 2006. The third FOMC meeting is scheduled to take place on May 10, 2006, and Fed Funds Futures traders are now predicting a 71% chance that The FOMC will raise the Fed Funds Rate by yet another 25 basis points at the May 10 meeting.

Economists from Citigroup Global Markets are now predicting that The FOMC will raise The Fed Funds Rate by a quarter point at each of the next 2 FOMC meetings, which, according to this estimate, would translate to a prime rate of 8% after the FOMC meets on May 10, 2006.

Economists @ Bear Stearns & Co. are now predicting that The FOMC will raise The Fed Funds Rate by 25 basis points at each of the next 3 FOMC meetings, which, according to this prediction, would translate to a prime rate of 8.25% after the June 28-29 FOMC meeting.

The odds that have been referenced in this blog entry change on a regular basis, so stay tuned for the latest odds.


The current U.S. prime rate (WSJ prime rate) is 7.5%, and a jump to 7.75% is very likely on March 28, 2006.

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