Prime Rate

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

Thursday, October 29, 2009

Futures Market 100% Certain U.S. Prime Rate Will Hold At 3.25% After The November 4 FOMC Monetary Policy Meeting

Federal Deposit Insurance Corporation (FDIC)
(FDIC)
The Federal Depositors Insurance Corporation (FDIC) recently updated its list of failed banks. So far this year, 106 banks have failed, and it's a very safe bet that there will be more failures before the year is out.

Crossing the 100 mark is a significant event, but it should also be put into perspective. Back in 1989, when the Savings and Loan crisis was in full swing, 534 financial institutions failed.


If you have $250,000 or less on deposit at your bank, then you have nothing to worry about. If you have more than $250K on deposit, then you may want to check out a useful tool the FDIC has on its website. It's the Electronic Deposit Insurance Estimator (EDIE), and you can use it too see if all your money is covered. You can find EDIE here.

There are some easy options for those who need to get around the $250K insured limit, like opening deposit accounts at different banks, or using the Certificate of Deposit Account Registry ServiceĀ® (CDARS).

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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 November 4TH, 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 November 4TH, 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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Tuesday, October 06, 2009

Futures Market 98% Certain U.S. Prime Rate Will Hold At 3.25% After The November 4 FOMC Monetary Policy Meeting

The Reserve Bank of Australia (RBA), Australia's central bank, has just raised the target for its cash rate by 25 basis points (0.25 percentage point), from 3.00% to 3.25%. Today's news is significant because Australia is the first G20 nation to raise its cardinal short-term interest rate since central banks around the world cut rates aggressively to counter the effects of the global credit crisis. Australia, which is the 14TH largest economy in the world, last made a move on rates back in April of this year, when the RBA cut the target for it's key rate by 25 basis points.

Australia has weathered the global recession and financial crisis relatively well. The Australian economy grew by 0.6% during Q2 2009, while the United States declined by 0.7% during the same period.

Most economists are forecasting that the Fed will leave rates at record-low levels into 2010. When the Fed does decide to boost short-term rates, the Federal Open Market Committee (FOMC) is very likely to do so aggressively, as there's already an extraordinary amount of cash in the system that will need to be reined in. The Fed is very much aware of the risk of sparking another Great Inflation like the one the U.S. experienced during the 1970's. In the early 80's, Former Fed boss Paul Volcker was forced to raise rates to very high levels to bring inflation under control. The most significant byproduct of those high rates was a recession.

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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 98% (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 November 4TH, 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 November 4TH, 2009 FOMC monetary policy meeting is adjourned: 98% (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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