First FOMC Meeting of 2007 Adjourned: The Prime Rate Remains at 8.25%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned the first monetary policy meeting of 2007, and, in keeping with the latest forecast, the FOMC elected to leave short-term interest rates at their current level. Therefore, the benchmark Federal Funds Target Rate will remain at 5.25%, and the Wall Street Journal® Prime Rate (also known as the U.S. or national Prime Rate) will remain at the current 8.25%.

Here's a clip from the press release that was issued by the FOMC earlier this afternoon:

"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market. Overall, the economy seems likely to expand at a moderate pace over coming quarters.

Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time. However, the high level of resource utilization has the potential to sustain inflation pressures.

The Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh."

The Latest Odds

As of right now, Fed Funds Futures traders have odds at around 4% (according to current pricing on contracts) that the FOMC will vote to lower the benchmark Fed Funds Target Rate by 25 basis points at the June 28^TH, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• In all likelihood, the Prime Rate will remain at the current 8.25% after the March 21^ST and May 9^TH FOMC monetary policy meetings.
  
• Current odds that the Prime Rate will be cut to
  8.00% on June 28^TH, 2007: 4% (very unlikely)
  
• NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are continually changing, so stay tuned for the latest odds. Odds may experience a significant shift on the release of the following economic reports:

• Friday, February 2, 2007: The Labor Department releases the Employment Situation report for January, 2007.
  
• Friday, February 16, 2007: Labor Department releases the Producer Price Index (PPI) report for January, 2007.
  
• Wednesday, February 21, 2007: Labor Department releases the Consumer Price Index (CPI) report for January, 2007.

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