Futures Market 97% Certain Prime Rate Will Hold At 3.25% After The April 29 Fed Meeting

Last Friday, the Labor Department announced that American employers shed another 663,000 jobs last month, and that the unemployment rate rose from 8.1% for February to 8.5% for March. Employers have eliminated over 5 million jobs since the recession began at the end of 2007, and the total number of jobless people in the USA is now 13.2 million.

On Thursday, the Labor Department reported that there were 669,000 new claims from unemployment benefits during the week that ended on March 28, 2009. During the week that ended on March 21, there were 5,728,000 people collecting an unemployment check across the country.

In housing news, the latest S+P / Case-Shiller report on home prices was released last Tuesday. The following are some notable price declines for the January 2008 through January 2009 period:

• San Francisco: -32.4%
• San Diego: -24.9%
• Phoenix: -35.0%
• Miami: -29.4%
• Los Angeles: -25.8%
• Las Vegas: -32.5%
• Detroit: -22.6%

Over the past 9 years, Detroit has fared the worst of all the major metropolitan areas. The home price index for Detroit came in at 77.56 for January 2009. The baseline score of 100.00 is associated with home prices during January 2000. So, the price of a typical, single-family home in Detroit was down 22.44% when comparing its price during January 2000 to its price during January 2009. Yikes! In contrast, and for some perspective, the index for the New York City metro area came in at 181.28, which indicates an increase of 81.28% for the same period.


Also from Tuesday, The Conference Board reported that its Consumer Confidence Index (CCI) was a very somber 26.0 during March 2009. For the CCI, the baseline 100.00 score is pegged to 1985 survey data.

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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 97% (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: 97% (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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