Prime Rate

also known as the Fed, National or United States Prime Rate,
from the interest-rate specialists at www.FedPrimeRate.comSM

Wednesday, October 31, 2007

Fed Rate Decision Today: Odds On A Cut at 94%

A week ago, the odds that the Fed will opt to lower short-term interest rates on Halloween were at 100%, according to pricing on contracts at the fed funds futures market. Right now, the market isn't as confident as it was 7 days ago that a rate cut is coming later this afternoon, but the odds are still quite strong in favor of a cut; 94% strong.

So if you're hoping that the Fed will deliver a treat for American consumers this Halloween, then you most likely won't be disappointed.

Since the Federal Open Market Committee (FOMC) opted to cut aggressively last month, there is a slight chance that the FOMC will opt to shift to wait-and-see mode today and vote to leave interest rates alone. After all, many sectors of the economy are doing just fine, and the employment situation is still rosy. If the group chooses to do nothing with the Federal Funds Target Rate later today, the dollar may recover a bit, but the stock market will almost certainly react negatively. The Fed doesn't want to cut just to give Wall Street what it wants or expects, but a sharp decline in stocks could combine with credit market turmoil, housing woes and subprime misery and cause the economy to decelerate into recession, and the Fed doesn't want that either. So, if the Fed is actually on the fence about cutting rates right now, the Wall Street element may just be the factor that gets the FOMC to cut rates today.

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The Fed will release their decision on interest rates at around 2:15 this afternoon. Stay tuned!


The Latest Odds

As of right now, the investors who trade in fed funds futures have odds at 94% (according to current pricing on contracts) that the FOMC will vote to cut the benchmark Federal Funds Target Rate by 25 basis points at the October 31ST, 2007 monetary policy meeting (today.)


Summary of the Latest Prime Rate Forecast:
  • Current odds that the Prime Rate will be cut to 7.5% after the October 31ST, 2007 FOMC monetary policy meeting: 94% (very likely)
  • NB: U.S. 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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