Prime Rate

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

Tuesday, September 22, 2009

Futures Market 100% Certain U.S. Prime Rate Will Hold At 3.25% After Tomorrow's Monetary Policy Meeting

prime rate forecast
The Federal Open market Committee (FOMC) decided to release its decision on short-term rates tomorrow as opposed to today, but it's still an extremely safe bet that the group will vote to leave rates alone. That means the U.S. Prime Rate will remain at 3.25% after tomorrow's afternoon's announcement.

Since the employment picture is still bleak and the overall economy still needs time to return to prosperity, most rate watchers expect the Fed to keep short-rates at current levels into Q1 2010.

The fact the Fed will keep rates on hold tomorrow will come as a surprise to no one, but economists will pay particular attention to the FOMC statement which will accompany tomorrow's press release on rates. It will be interesting to see if the Fed plans on changing its stance on buying mortgage-backed securities and U.S. Treasuries, since pulling back on these programs could have serious consequences for the U.S. housing market. It will also be interesting to see if any FOMC members break from consensus and vote instead for an increase for short-term rates, a development that could portend an end to ultra-low interest rates sooner than most economists are currently predicting.

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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 tomorrow's monetary policy meeting.


Summary of the Latest Prime Rate Forecast:
  • Current odds that the Prime Rate will remain at the current 3.25% after tomorrow's 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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