Futures Market 100% Certain U.S. Prime Rate Will Hold At 3.25% After The April 28 FOMC Monetary Policy Meeting

For certain, Americans are starting feel prosperous again.

Yesterday, the Commerce Department reported that consumer spending increased by 0.3% last month, the fifth-straight month in positive territory. Today, the Conference Board reported that its Consumer Confidence Index (CCI) rose from 46.0 for February to 52.5 for this month.

The Fed is going to cease buying mortgage-backed securities (MBS) tomorrow (Wednesday.) That, in turn, will likely cause mortgage rates to rise steadily over time. Not good news for the beleaguered housing market.

With the DJIA almost back to the 11,000 mark again, it's no wonder that Americans are feeling optimistic about their financial circumstances. So I guess it's time for a reality check, in the form of a bear-market update.

Since closing with record highs on October 9, 2007, the DJIA has now lost 3,257.11 points (22.995%), while the broader S + P 500 Index has shed 391.88 points (25.038%). The record high for the DJIA is 14,164.53; for the S + P 500 Index it's 1,565.15. Earlier today, the DJIA closed at 10,907.42, which is just about where is settled on June 7, 1999 (10,909.38).

Earnings season is just around the corner, and expectations are high. According to Thomson Reuters, companies in the S + P 500 Index are projected to report earnings growth of 36%, with revenue growth expanding by 10%. If the prognosticators got it right, we may see the DJIA reaching for 12,000 by Xmas 2010.

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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 28^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 April 28^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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