Prime Rate

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

Wednesday, October 24, 2007

Futures Market Now Certain That A Rate Cut Will Happen On October 31

Earlier today, the National Association of Realtors® released the existing homes sales report for September. According to the report, sales of preowned homes fell by 8.0% since August, and by 19.1% since September of '06. The median price for a used home was down by 4.2% when compared to 12 months previous, while the average price was down by 3.2%. Inventories of preowned homes remained high, which portends more pain for the housing sector for months to come.

The futures market reacted to today's housing news: the odds on a rate cut for the October 31ST Federal Open Market Committee (FOMC) monetary policy meeting jumped to 100%. It's a pretty safe bet that news of Merrill Lynch's worst quarterly loss in the company's history also influenced the futures market this morning. Merrill is the latest casualty of the nation's subprime mortgage debacle.

Here's another safe bet: if the Fed cuts rates as expected, the dollar will continue to decline and commodities like crude oil and gold will likely soar to record highs. Yep.

--

Looks like consumers are in for a treat this Halloween: the cost of borrowing in America is about to get a bit cheaper.


The Latest Odds

As of right now, the investors who trade in fed funds futures have odds at 100% (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.


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: 100% (certain)
  • 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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