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

The 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 22^ND, August 9^TH and September 20^TH 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 22^ND, August 9^TH and September 20^TH 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.

Labels: bear_market_update, odds, prime_rate_forecast