Prime Rate

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

Friday, October 24, 2008

Futures Market 100% Certain Fed Will Cut The Prime Rate on Wednesday

prime rate forecastThe fed funds futures market is still 100% certain that the Fed will cut short-term rates, including the U.S. Prime Rate, by at least 25 basis points (0.25 percentage point) on Wednesday. Here are some items that probably has some influence on the futures market this week:

  • Earlier today, the National Association of Realtors┬« reported that sales of existing homes ticked up by 5.5% last month, but home prices fell. The median cost for a preowned home fell from $203,100 for August to $191,600 during September. The average price for a used home fell from $245,400 for August to $234,700 during September. Click here for historical prices and a chart.
  • Since closing with record highs on October 9, 2007, the Dow Jones Industrial Average (DJIA) has now lost 5,785.58 points (40.846%), while the broader S+P 500 Index has given up 688.38 points (43.982%). The record high for the DJIA is 14,164.53; for the S&P 500 Index it's 1,565.15.
  • In New York, crude oil for future delivery closed at $64.15 per barrel earlier today. That's a retreat of $42.74 (39.985%) since crude closed at $106.89 per barrel on September 26, 2008.
  • On Wednesday, the Federal Reserve announced that it's going to raise the interest rate paid to banks that have excess balances on deposit at the Fed.

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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 100% (as implied by current pricing on contracts) that the FOMC will vote to cut the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at the October 29TH, 2008 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:
  • Current odds that the Prime Rate will be cut by at least 25 basis points at the October 29TH, 2008 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 constantly changing, so stay tuned for the latest odds.

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