Prime Rate

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

Friday, March 06, 2009

The Unemployment Rate Is Now 8.1%; Futures Market Still Betting On No Rate Change for March 17

prime rate forecastEarlier today, the Labor Department reported that American, non-farm payrolls shrank by 651,000 last month, while the unemployment rate jumped from 7.6% to 8.1%. As of the end of February, there were 12,500,000 unemployed persons in the United States.

Yesterday, the Labor Department reported that there were 639,000 new claims for jobless benefits during the week that ended on February 28. During the week that ended on February 21, there were 5,106,000 people receiving an unemployment check.

Right now, the fed funds futures market is still 94% certain that the Federal Open Market Committee (FOMC) will leave short-term rates, including the U.S. Prime Rate, at current levels when the group adjourns its next monetary policy meeting on March 17TH.

Other economic news which likely influenced futures traders this week:

  • On Tuesday, the Bank of Canada, Canada's central bank, lowered its benchmark interest rate from 1.0% to 0.5%, which in turn caused the country's Prime Rate to drop to 2.5%, a new record low.
  • On Thursday, the European Central Bank (ECB) lowered its benchmark interest rate from 2.0% to 1.50%. The Prime Rate in the eurozone is now the lowest it's been since the ECB was founded in 1998.
  • Also on Thursday, the Bank of England (BoE), the central bank for the United Kingdom, lowered its benchmark interest rate by 50 basis points (0.50 percentage point), from 1.0% to 0.50%. This is a record low for the BoE, which has been around since 1694.
  • Bear Market Update: since closing with record highs on October 9, 2007, the Dow Jones Industrial Average (DJIA) has now lost 7,537.59 points (53.215%), while the broader S&P 500 Index has given up 881.77 points (56.338%). The record high for the DJIA is 14,164.53; for the S+P 500 Index it's 1,565.15.

    For the year, the DJIA is down 2,149.45 points (24.491%), while the S&P 500 is down 219.87 points (24.342%).
  • For a brief period during trading today, and for the first time ever, Citigroup (C) became a penny stock. Eventually, Big "C" advanced back up above the dollar mark and closed at $1.03 per share.
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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 94% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the March 17TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:
  • Current odds that the Prime Rate will remain at the current 3.25% after the March 17TH, 2009 FOMC monetary policy meeting is adjourned: 94% (very 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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