Prime Rate

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

Friday, October 19, 2007

Odds On A Rate Cut for the October 31 FOMC Meeting Hit 92% On Flight to Quality

Stocks fell sharply today -- over 2.5% for each of the 3 major indexes. The Dow Jones Industrial Average (DJIA) lost 367 points; all 30 component companies that make up the DJIA retreated today. Today also happens to be the anniversary of the 1987 stock-market crash. Hmmm...

Investors got spooked by disappointing earnings reports and by continued concern about the turmoil that still exists in international credit markets. Lots of Wall Street money was moved to the safety of U.S. Treasuries, as evidenced by lower yields on the 30-year bond and the 10-year note.

Crude oil and gold prices surged, as the dollar once again lost ground against the euro and other major currencies this week. But the dollar's continued decline wasn't enough to convince futures traders that the Fed won't cut interest rates on October 31. In fact, the investors who trade in fed funds futures are now quite confident that the Fed will lower short-term interest rates on Halloween; 92% confident. Odds on a rate cut were at 70% yesterday.


The Latest Odds

As of right now, the investors who trade in fed funds futures have odds at 92% (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: 92% (likely)
  • NB: U.S. Prime Rate, currently @ 7.75%, = (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. Odds may experience a significant shift on the release of the following economic report:

  • Wednesday, October 24, 2007: The National Association of Realtors┬« releases the Existing Home Sales report for September.

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