United States Prime Rate

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

Saturday, January 01, 2011

Futures Market 100% Certain U.S. Prime Rate Will Remain At 3.25% Into May of 2011

prime rate forecastThe next three Federal Reserve (Fed) monetary policy meetings are January 26, March 15 and April 27. As of today, the fed funds futures market is 100% certain that the Fed will do nothing with short-term rates at all 3 meetings. Translation: the US Prime Rate is extremely likely to remain at the current 3.25% well into spring. Great news for borrowers and those with existing debt tied to Prime. Unfortunately, however, it's also a very strong indication that the economy isn't going to improve in a significant way before summer 2011.

Stocks did OK last year, but the Bear is still very much with us.

For 2010, the Dow Jones Industrial Average (DJIA) enjoyed a yearly gain of 1,149.46 points (+11.023%) to finish @ 11,577.51, while the broader S&P 500 Index added 142.54 points (+12.783%) to finish @ 1,257.64.

Not bad, right? OK, now for the reality check.

Since closing with record highs on October 9, 2007, the DJIA has shed 2,587.02 points (-18.264%), while the S&P 500 Index has shaken off 307.51 points (-19.647%). The record high for the DJIA is 14,164.53; for the S+P 500 Index it's 1,565.15.

On December 31, 1999, the S+P 500 Index closed @ 1,469.25, and the DJIA ended the day @ 11,497.12.

My apologies for the buzzkill! Actually, the above numbers aren't so bad when you consider how they looked at our last bear market update.

All the best for 2011!

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 Federal Open Market Committee (FOMC) will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the January 26TH, March 15TH and April 27TH monetary policy meetings.

Summary of the Latest Prime Rate Forecast:
  • Current odds that the Prime Rate will remain at the current 3.25% after the January 26TH, March 15TH and April 27TH FOMC monetary policy meetings are 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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