Futures Market 92% Certain Prime Rate Will Remain at 5.00% After September 16 Fed Meeting

Yesterday's positive news that The Conference Board's Consumer Confidence Index (CCI) rose from 51.9 for July to 56.9 for this month was offset by new evidence that the North American banking sector still has some way to go before it's out of the woods. Here's a clip from a press release issued by the Federal Deposit Insurance Corporation (FDIC) yesterday:

"...Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported net income of $5.0 billion in the second quarter of 2008, a decline of $31.8 billion (86.5 percent) from the $36.8 billion that the industry earned in the second quarter of 2007. With the exception of the fourth quarter of last year, the latest earnings were the lowest for the industry since the fourth quarter of 1991.

'By any yardstick, it was another rough quarter for bank earnings, but the results were not unexpected as the industry coped with financial market disruptions, the housing slump, worsening economic conditions and the overall downturn in the credit cycle,' said FDIC Chairman Sheila C. Bair.

The FDIC's 'problem list' grew to 117 institutions from 90 at the end of the first quarter. That is largest number on the list since the middle of 2003. Total assets of problem institutions increased from $26 billion to $78 billion, with $32 billion coming from IndyMac Bank, F.S.B., Pasadena, CA, which failed in July. 'More banks will come on the list as credit problems worsen,' Chairman Bair added. 'Assets of problem institutions also will continue to rise...'"

The FDIC believes that 117 American financial institutions are looking pale in the face. More bank failures on the way? Almost certainly.

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As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 92% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark Federal Funds Target Rate at the current 2.0% at the September 16^TH, 2008 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 5.0% after the September 16^TH, 2008 FOMC monetary policy meeting: 92% (likely)
  
• Current odds that the Prime Rate will remain at the current 5.0% after the October 29^TH, 2008 FOMC monetary policy meeting: 83% (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 constantly changing, so stay tuned for the latest odds.

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Futures Market 88% Certain Prime Rate Will Remain at 5.00% After September 16 Fed Meeting

Inflation pressure continued to ease this week as the dollar enjoyed another week of gains against the euro. Here's another look at how the dollar and key commodities are doing right now:

• New York Spot Gold closed at $964.60 on July 11. Today it closed at $786.00 per ounce. That's a decline of $178.6 (18.515%.)
  
• Crude oil for future delivery finished at $113.77 per barrel today. Crude hit a record high of $147.27 on July 11; that's a drop of $33.50 (22.747%.)
  
• On July 11, the euro bought $1.5937 dollars. Earlier today, the euro bought $1.4688 dollars.

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The futures market has odds at 88% that the Federal Open Market Committee (FOMC) will leave the benchmark Fed Funds Target Rate at its current level of 2.0% when the group meets on September 16^TH, 2008. 12% in the market are betting that the Fed will raise short-term rates by at least 25 basis points (0.25 percentage point) on September 16^TH.


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 88% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark Federal Funds Target Rate at the current 2.0% at the September 16^TH, 2008 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 5.0% after the September 16^TH, 2008 FOMC monetary policy meeting: 88% (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 constantly changing, so stay tuned for the latest odds.

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Futures Market 78% Certain Prime Rate Will Remain at 5.00% After September 16 Fed Meeting

Wall Street is feeling better about the outlook for inflation, as evidenced by the cost of key commodities and currencies at the week's end:

• New York Spot Gold ended the week at $855.50; it closed at $964.60 on July 11. That's a decline of $109.10 (11.31%.)
  
• Crude oil for future delivery finished at $115.20 per barrel on Friday. Crude hit a record high of $147.27 on July 11; that's a drop of $32.07 (21.776%.) You may have noticed cheaper gas at your favorite station already (I know I have.)
  
• On Friday, the euro bought $1.5005 dollars. On July 11, the euro bought $1.5937 dollars. A dime doesn't seem like much but it's a big deal in the currency markets.

For the government's official report on consumer prices, stay tuned for the July Consumer Price Index (CPI) figures which will be released by the Labor Department on Thursday, August 14.

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The futures market has odds at 78% that the Federal Open Market Committee (FOMC) will leave the benchmark Fed Funds Target Rate at its current level of 2.0% when the group meets on September 16^TH, 2008. 22% in the market are betting that the Fed will raise short-term rates by at least 25 basis points (0.25 percentage point) on September 16^TH.


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 78% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark Federal Funds Target Rate at the current 2.0% at the September 16^TH, 2008 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 5.0% after the September 16^TH, 2008 FOMC monetary policy meeting: 78% (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 constantly changing, so stay tuned for the latest odds.

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Fifth FOMC Meeting of 2008 Adjourned: The Prime Rate Remains at 5.00%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its fifth monetary policy meeting of 2008, and, in keeping with the latest forecast, the FOMC has voted to leave short-term interest rates at their current level. Therefore, the benchmark Federal Funds Target Rate will remain at 2.00%, and the Wall Street Journal® Prime Rate (also known as the U.S., Fed or national Prime Rate) will remain at the current 5.00%.

Here's a clip from the press release that was issued by the FOMC earlier this afternoon:

"...The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting..."

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Futures Market 92% Certain Prime Rate Will Remain at 5.00% After August 5 Fed Meeting

The American workforce shrank by 51,000 jobs last month, according to the Labor Department's employment situation report released earlier today. The unemployment rate rose to 5.7%.

The American economy hasn't added jobs since last December.

With the whole nation complaining about rising prices, there's no question that more than a few economists within the Federal Reserve system would like to see the Federal Open Market Committee (FOMC) raise short-term rates when the group meets on August 5^TH. However, with an economy that's still hemorrhaging jobs, it's very likely the Fed will opt to keep rates steady when they release their decision Tuesday afternoon.


The futures market has odds at 92% that the Federal Open Market Committee (FOMC) will leave the benchmark Fed Funds Target Rate at its current level of 2.0% when the group meets on August 5^TH, 2008. 8% in the market are betting that the Fed will raise short-term rates by 25 basis points (0.25 percentage point) on August 5^TH.


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 92% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark Federal Funds Target Rate at the current 2.0% at the August 5^TH, 2008 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 5.0% after the August 5^TH, 2008 FOMC monetary policy meeting: 92% (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 constantly changing, so stay tuned for the latest odds.

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