Fed Decision Imminent: Odds On A 50 Basis Point Cut at 74%

Prime Rate Forecast - Predictions

The economy grew by 0.6% during the fourth quarter of 2007, according to the "advance" estimate released by the Commerce Department this morning. Wall Street economists were expecting around 1.2%. 0.6% growth is certainly slow enough for the Fed to cut aggressively, as expected. The odds that the Fed will cut short-term rates by 50 basis points (0.50 percentage point) are currently at 74%, while odds on a 25 basis point cut are at 26%.

The decision on interest rates will be released in less than one hour. Stay tuned.


Summary of The Latest Odds

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 100% (as implied by current pricing on contracts) that the FOMC will vote to lower the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) today.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will be cut by at least 25 basis points today: 100% (certain)
• Current odds that the Prime Rate will be cut by 50 basis points today: 74% (more likely than unlikely)
• NB: U.S. Prime Rate = (The Federal Funds Target Rate + 3)

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