Futures Market 100% Certain Prime Rate Will Hold At 3.25% After Wednesday's Fed Meeting

The Fed's next decision on short-term interest rates will be on Wednesday, and the futures market is now 100% certain that the Federal Open Market Committee (FOMC) will vote to leave short-term rates at their current levels. This means the U.S. Prime Rate will remain at the current 3.25%.

Rate News from Canada: Overnight Rate Now 0.25%

Last Tuesday, the Bank of Canada, which is Canada's central bank, cut its benchmark overnight target interest rate from 0.5% to 0.25%, which in turn caused the Canadian Prime Rate to drop from 2.50% to 2.25%. Canada's overnight rate is now on par with the Fed's benchmark rate. 0.25% is a brand new record low for Canada's central bank (the bank was founded in 1934) and it's the lowest it can possibly go. Here's a clip from the press release issued last week:

"...In an environment of continued high uncertainty, the global recession has intensified and become more synchronous since the Bank's January Monetary Policy Report Update, with weaker-than-expected activity in all major economies. Deteriorating credit conditions have spread quickly through trade, financial, and confidence channels. While more aggressive monetary and fiscal policy actions are underway across the G20, measures to stabilize the global financial system have taken longer than expected to enact. As a result, the recession in Canada will be deeper than anticipated, with the economy projected to contract by 3.0 per cent in 2009. The Bank now expects the recovery to be delayed until the fourth quarter and to be more gradual. The economy is projected to grow by 2.5 per cent in 2010 and 4.7 per cent in 2011, and to reach its production capacity in the third quarter of 2011. Given significant restructuring in a number of sectors, potential growth has been revised down. The recovery will be importantly supported by the Bank's accommodative monetary stance..."

In other economic news:

• According to the latest Commerce Department report on new home sales, the cost of a brand new home at the end of last month was about the same as it was at the end of 2003. The latest figures were released last Friday, with the median price on a newly built home dropping from $208,700 during February to $201,400 during March. Click here for historical prices and a chart.
  
• Preliminary existing home sales figures were released by the National Association of Realtors® last Thursday. The report indicated that the median price on a previously occupied home has increased since the start of 2009:
  
  -- January: $164,800
  -- February: $168,200
  -- March: $175,200
  
  Click here for historical prices and a chart.

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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 leave the benchmark target range for the Federal Funds Rate at its current level at the April 29^TH, 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 April 29^TH, 2009 FOMC monetary policy meeting is adjourned: 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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