Prime Rate

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

Wednesday, August 25, 2010

Futures Market 100% Certain U.S. Prime Rate Will Remain At 3.25% After The September 21 FOMC Monetary Policy Meeting, And The Rest of 2010

prime rate forecastIf you've got plenty of money in the bank and you're in the market for a new house, then this week's housing news is music to your ears. If you've been sitting on the fence for a while, waiting for prices to drop, then you might want to wait a little longer. Prices are likely to head further south, as inventories are rising, the American foreclosure pandemic is still with us and there is currently no talk of a new homebuyer tax credit.

For those unnumbered Americans who own homes and upside down with their mortgage, this week's news is quite depressing.

Yesterday, the National Association of Realtors® reported that sales of existing homes dropped by 27.2% last month. Here's the most important quote from yesterday's report:

"...Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales – accounting for the bulk of transactions – are at the lowest level since May of 1995..."
To see how prices are doing, click here to view a history and chart.

Of course, these numbers offer a very broad view of how existing home sales are doing across the country. I have a friend who lives in the suburban Philadelphia who can easily profit by about $100,000 if she decided to sell right now. That's based on the only numbers that matter: recent sales of comparable homes in her neighborhood.

Today, the Commerce Department reported that sales of newly built homes sank by 12.4% last month, and dropped by 32.4% when comparing July of 2010 to to July of 2009. Prices declined as well: the median cost of a new home dropped from $217,000 to $204,000, while the average price dropped from $248,300 to $235,300.

click here to view a history and chart

Here's an interesting WSJ video with some insightful analysis:





There are 3 more Federal Open Market Committee (FOMC) monetary policy meetings this year: September 21, November 3 and December 14. Currently, the fed funds futures market is 100% certain that the Fed won't raise short-term rates at the next monetary policy meeting, and for the rest of the year.

--

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 September 21ST 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 September 21ST, 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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