Probability of A Rate Cut for The March 21, 2007 FOMC Monetary Policy Meeting Drops to 10% On Encouraging Housing Data
The current national Prime Rate is 8.25%: get used to it!
Bottom line: the Fed will only lower interest rates next year if the U.S. economy needs a helping hand.
Right now, the nation's housing sector is arguably the biggest cause for concern. But this week's data related to the housing market was encouraging: both new and existing home sales showed improvement in November. Of course, it's really too soon to celebrate, because when the November housing numbers are compared to the numbers from a year ago, it's still quite clear that a lot more buying/selling activity will have to happen in the coming months before real estate agents can stop holding their collective breath.
In light of the latest housing numbers, the Fed is now less likely to lower interest rates before the third quarter of 2007. Contributing to the decreased likelihood of a rate cut for early 2007: The Conference Board's Consumer Confidence Index jumped from 102.9 last month to 109.0 for December '06.
The Latest Odds
Of course, investors reacted to this week's housing news. As of right now, the folks who trade in Federal Funds Futures have odds at around 10% (according to current pricing on contracts) that the Federal Open Market Committee (FOMC) will elect to lower the benchmark Federal Funds Target Rate by 25 basis points at the March 21ST, 2007 monetary policy meeting.
Summary of the Latest Prime Rate Predictions:
The odds related to Federal Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Federal Funds Target Rate -- are continually changing, so stay tuned to this blog for the latest odds.
Bottom line: the Fed will only lower interest rates next year if the U.S. economy needs a helping hand.
Right now, the nation's housing sector is arguably the biggest cause for concern. But this week's data related to the housing market was encouraging: both new and existing home sales showed improvement in November. Of course, it's really too soon to celebrate, because when the November housing numbers are compared to the numbers from a year ago, it's still quite clear that a lot more buying/selling activity will have to happen in the coming months before real estate agents can stop holding their collective breath.
In light of the latest housing numbers, the Fed is now less likely to lower interest rates before the third quarter of 2007. Contributing to the decreased likelihood of a rate cut for early 2007: The Conference Board's Consumer Confidence Index jumped from 102.9 last month to 109.0 for December '06.
- Good news for home shoppers and investors: for both new and existing homes, inventories -- the number of homes on the market -- are still high, and prices are quite stagnant. Furthermore, foreclosures are likely to rise in the new year (it's really important to understand how Adjustable Rate Mortgages (ARM's) and Payment-Option Mortgages work!)
The Latest Odds
Of course, investors reacted to this week's housing news. As of right now, the folks who trade in Federal Funds Futures have odds at around 10% (according to current pricing on contracts) that the Federal Open Market Committee (FOMC) will elect to lower the benchmark Federal Funds Target Rate by 25 basis points at the March 21ST, 2007 monetary policy meeting.
Summary of the Latest Prime Rate Predictions:
- In all likelihood, the Prime Rate will remain at the current 8.25% after the January 31ST FOMC monetary policy meeting.
- Current odds that the Prime Rate will be cut to 8.00% at the
March 21ST, 2007 FOMC monetary policy meeting: 10% (very unlikely)
- NB: Prime Rate = (The Federal Funds Target Rate + 3)
The odds related to Federal Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Federal Funds Target Rate -- are continually changing, so stay tuned to this blog for the latest odds.
Labels: fomc, odds, prime_rate_forecast, rate_cut
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posted by Steve Brown | 12/29/2006 09:00:00 AM
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