Second 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 their second monetary policy meeting of 2007, and, in keeping with the latest forecast, the FOMC has voted 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 been mixed and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters.

Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments 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; 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 44% (according to current pricing on contracts) that the FOMC will elect 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 May 9^TH FOMC monetary policy meeting.
  
• Current odds that the Prime Rate will be cut to 8.00% after the June 28^TH, 2007 FOMC monetary policy meeting: 44% (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, March 23, 2007: The National Association of Realtors® releases the Existing Home Sales report for February, 2007.
  
• Monday, March 26, 2007: The Commerce Department releases the New Home Sales report for February, 2007.
  
• Thursday, March 29, 2007: The Commerce Department releases the final Gross Domestic Product report for Q4, 2006.

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