United States Prime Rate

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

Wednesday, June 22, 2011

Fourth FOMC Meeting of 2011 Adjourned: U.S. Prime Rate Holds At 3.25%

FOMC votes to leave short-term rates unchanged; Prime Rate remains at 3.25%The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its fourth monetary policy meeting of 2011 and, in accordance with our most recent forecast, has voted to leave short-term interest rates at their current levels. Therefore, the benchmark target range for the federal funds rate will remain at 0% - 0.25%, and the Wall Street Journal® Prime Rate (also known as the U.S., national or Fed Prime Rate) will remain unchanged at the current 3.25%.

Here's a clip from today's FOMC press release (note the text in bold):

"...Information received since the Federal Open Market Committee met in April indicates that the economic recovery is continuing at a moderate pace, though somewhat more slowly than the Committee had expected. Also, recent labor market indicators have been weaker than anticipated. The slower pace of the recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Inflation has picked up in recent months, mainly reflecting higher prices for some commodities and imported goods, as well as the recent supply chain disruptions. However, longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The unemployment rate remains elevated; however, the Committee expects the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline toward levels that the Committee judges to be consistent with its dual mandate. Inflation has moved up recently, but the Committee anticipates that inflation will subside to levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee will complete its purchases of $600 billion of longer-term Treasury securities by the end of this month and will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The Committee will monitor the economic outlook and financial developments and will act as needed to best foster maximum employment and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen..."

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Friday, June 03, 2011

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

prime rate forecastThe next three Federal Reserve (Fed) monetary policy meetings are June 22, August 9 and September 20. As of today, the fed funds futures market is 100% certain that the Fed will opt to leave short-term rates (including the US Prime Rate) at their current levels at all 3 meetings. That means Prime Rate is extremely likely to remain at the current 3.25% into November of this year (the second-to-last monetary policy meeting is set for November 2, 2011.)

The economy is expanding, and many American companies are sitting on massive mountains of cash. But we've still got a long way to go.

  • Earlier today, the Labor Department reported that American companies added 54,000 nonfarm jobs to the economy last month. Wall Street was expecting around 170,000 for May. Bottom line: the unemployment rate (currently @ 9.1%) isn't going to improve in a significant way unless 250,000 - 300,000 jobs are created month after month. On Thursday, we learned that 7,682,830 Americans are collecting jobless benefits.
  • On May 31, we learned that home prices are still moving in the wrong direction. Here's a clip from the S&P/Case-Shiller report:

    "... Data through March 2011, released today by Standard & Poor’s for its
    S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after having fallen 3.6% in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter’s data and posted an annual decline of 5.1% versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels..."
  • Recently, so much money has been moving to the safety of government debt that from May 6 - May 9, investors were willing to lending cash to the federal government for 3 months, and make no return on their money (demand pushes Treasury yields down.) Consumers can borrow @ 0% and spend on...whatever. Why not the Uncle Sam, eh?

    On Wednesday, the yield on the 10-year Treasury Note closed below the 3% mark (2.97% to be exact.)
  • Stocks have been retreating from their recent, April 29 crest. The Dow Jones Industrial Average (DJIA) closed @ 12,810.54 back then; today's close was 12,151.26. That's a decline of 659.28 points, or -5.146%.

    The broader S&P 500 closed @ 1,363.61 on April 29; today's close was 1,300.16. That's a decline of 63.45 points, or -4.653%.
On a positive note, stocks are still in positive territory for the year. For 2011, the DJIA is up 573.75 points (+4.956%), while the S&P 500 Index is up 42.52 points (+3.381%)

OK, let's get back to the depressing stuff, with our latest bear market update.

Since closing with record highs on October 9, 2007, the DJIA has given up 2,013.27 points (-14.213%), while the S&P 500 Index has dropped 264.99 points (-16.931%). The record high for the DJIA is 14,164.53; for the S&P 500 Index it's 1,565.15.


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 June 22ND, August 9TH and September 20TH FOMC 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 June 22ND, August 9TH and September 20TH 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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