Prime Rate

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

Friday, October 05, 2007

Odds On A Rate Cut for the October 31 FOMC Meeting Now at 48%

According to this morning's jobs report, the American workforce grew by 110,00 jobs during September, and the unemployment rate rose to 4.7%. Economists were expecting a rise of about 150,000 new, non-farm payrolls for September, so the actual figure came as no real surprise to economists and rate watchers.

What's surprising to me is the fact that Wall Street takes the initial report on non-farm payrolls released by the Labor Department seriously. The discrepancy between the initial, non-farm payrolls report for a given month and the revised report released a month later is often significant, and sometimes the discrepancy is so wide that it makes me wonder why the Labor Department doesn't seriously rework the way it reports its numbers. For example, last month the Department of Labor reported that the U.S. economy lost 4,000 jobs during August. Today, the Labor Department released revised figures for August, and reported that the economy actually gained 89,000 jobs! From -4,000 to +89,000? Makes me wonder if the Fed cut too aggressively on September 18 (the Fed cut the benchmark Fed Funds Target Rate by 50 basis points on September 18, which caused the U.S. Prime Rate to drop from 8.25% to 7.75%.)

Nevertheless, the fed funds futures market reacted to today's employment report, and is now on the fence as to whether the Fed will opt to lower rates or do nothing on October 31.

The Latest Odds

As of right now, the investors who trade in fed funds futures have odds at 48% (according to current pricing on contracts) that the Federal Open Market Committee (FOMC) of the Federal Reserve will vote to lower 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: 48% (on the fence)
  • NB: U.S. Prime Rate = (The Federal Funds Target Rate + 3) = 7.75%.

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. Odds may experience a significant shift on the release of the following economic report:

  • Wednesday, October 17, 2007: The Labor Department releases the Consumer Price Index report for September.

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