Futures Market 100% Certain U.S. Prime Rate Will Hold At 3.25% After The March 16 FOMC Monetary Policy Meeting

Yesterday, in testimony before the U.S. House of Representatives Committee on Financial Service, Fed Boss Ben Bernanke made it pretty clear that short-term rates, including the U.S. Prime Rate, won't rise any time soon. Here's a clip from Dr. Bernanke's prepared remarks:

"...Over the past year, the Federal Reserve has employed a wide array of tools to promote economic recovery and preserve price stability. The target for the federal funds rate has been maintained at a historically low range of 0 to 1/4 percent since December 2008. The FOMC continues to anticipate that economic conditions--including low rates of resource utilization, subdued inflation trends, and stable inflation expectations--are likely to warrant exceptionally low levels of the federal funds rate for an extended period..."

NB: It's widely accepted that "an extended period" means 3-4 Federal Open Market Committee (FOMC) monetary policy meetings, or about 6 months.

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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 March 16^TH, 2010 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 16^TH, 2010 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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