Fourth FOMC Meeting of 2007 Adjourned: The U.S. Prime Rate Holds at 8.25%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its fourth 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.

Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector. The economy seems likely to continue to expand at a moderate pace over coming quarters.

Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, 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, the investors who trade in Fed Funds Futures have odds at 15% (according to current pricing on contracts) that the FOMC will opt to lower the benchmark Federal Funds Target Rate by 25 basis points at the December 11^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 August 7^TH, September 18^TH and October 31^ST FOMC monetary policy meetings.
  
• Current odds that the Prime Rate will be cut to 8.00% after the December 11^TH, 2007 FOMC monetary policy meeting: 15% (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 Fed Funds Target Rate -- are continually changing, so stay tuned for the latest odds.

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