Prime Rate

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

Monday, December 21, 2015

Fed Fund Futures Have Odds At 7% (Not Likely) The U.S. Prime Rate Will Rise Again At The January 27, 2016 FOMC Monetary Policy Meeting

Prime Rate Forecast - Predictions - www.FedPrimeRate.com
Prime Rate Forecast - Predictions
Latest Prime Rate Forecast

As of right now, the investors who trade in fed fund futures via the CME Group have odds at 7% (as implied by current pricing on contracts) that the Federal Open Market Committee (FOMC) will vote to raise the target range for the benchmark fed funds rate by at least 25 basis points (0.25 percentage point) at the January 27TH, 2016 monetary policy meeting (not likely.)

The current United States Prime Rate, which went into effect on December 17, 2015, is 3.5%.

NB: US Prime Rate = (The Fed Funds Target Rate + 3)

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The Fed has plenty of economic cud to chew between now and the end of January: cheap crude oil, waning manufacturing and the potential for disinflation.  Stay tuned!

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Current Odds

  • Current odds that the Prime Rate (currently 3.5%) will rise by at least 25 basis points at the January 27TH, 2016 FOMC monetary policy meeting: 7% (not likely.)

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  • Current odds that the Prime Rate (currently 3.5%) will rise by at least 25 basis points at the March 16TH, 2016 FOMC monetary policy meeting: 54% (on the fence.)

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  • Current odds that the Prime Rate (currently 3.5%) will rise by at least 25 basis points at the April 27TH, 2016 FOMC monetary policy meeting: 61% (somewhat likely.)

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  • Current odds that the Prime Rate (currently 3.5%) will rise by at least 25 basis points at the June 15TH, 2016 FOMC monetary policy meeting: 74% (somewhat likely.)

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  • Current odds that the Prime Rate (currently 3.5%) will rise by at least 25 basis points at the July 27TH, 2016 FOMC monetary policy meeting: 79% (somewhat likely.)

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  • Current odds that the Prime Rate (currently 3.5%) will rise by at least 25 basis points at the September 21ST, 2016 FOMC monetary policy meeting: 86% (likely.)

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  • Current odds that the Prime Rate (currently 3.5%) will rise by at least 25 basis points at the November  2ND, 2016 FOMC monetary policy meeting: 89% (likely.)

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  • Current odds that the Prime Rate (currently 3.5%) will rise by at least 25 basis points at the December  14ND, 2016 FOMC monetary policy meeting: 91% (likely.)

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  • NB: US Prime Rate = (The Fed Funds Target Rate + 3)

The odds related to fed fund futures contracts -- widely accepted as the best predictor of what the FOMC will do with the benchmark Fed Funds Target Rate -- are constantly changing, so stay tuned for the latest odds.

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Wednesday, December 16, 2015

U.S. Prime Rate Rises to 3.5%

U.S. Prime Rate Is Now 3.5%
The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its eighth and final monetary policy meeting of 2015 and, as expected, has voted to raise the benchmark target range for the federal funds rate from 0% - 0.25% to 0.25% - 0.5%.  Therefore, the United States Prime Rate (a.k.a the Fed, Wall Street Journal®, national or WSJ Prime Rate) is 3.5%, effective tomorrow.

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American banks have already started to announce that their Prime Rate is now 3.5%, including:

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

"...Information received since the Federal Open Market Committee met in October suggests that economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft. A range of recent labor market indicators, including ongoing job gains and declining unemployment, shows further improvement and confirms that underutilization of labor resources has diminished appreciably since early this year. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; some survey-based measures of longer-term inflation expectations have edged down.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen. Overall, taking into account domestic and international developments, the Committee sees the risks to the outlook for both economic activity and the labor market as balanced. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to monitor inflation developments closely.

The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective. Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams..."
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Tuesday, December 15, 2015

Fed Fund Futures Have Odds At 81% (Somewhat Likely) The U.S. Prime Rate Will Rise Tomorrow (December 16, 2015)

Prime Rate Forecast - Predictions - www.FedPrimeRate.com
Prime Rate Forecast - Predictions
Latest Prime Rate Forecast

As of right now, the investors who trade in fed fund futures via the CME Group have odds at 81% (as implied by current pricing on contracts) that the Federal Open Market Committee (FOMC) will vote to raise the benchmark Fed Funds Target Rate by at least 25 basis points (0.25 percentage point) at tomorrow's (December 16TH, 2015) monetary policy meeting (somewhat likely.)

There are many bankers, investors and other yield chasers out there who have been doing their best to convince the Fed that raising the cost of borrowing for everyone is a good idea, despite tame inflation and a flagging manufacturing sector that would not respond well to a stronger US dollar.

And many others have been asking:

Why would the Fed risk slowing down this still-fragile economic recovery by raising rates now? Why not wait until the economy is stronger?  If inflation expectations become a concern, they can be quashed by increasing short-term rates down the road. Moreover, all economists know how difficult it would be to reflate this post-Great-Recession, structurally morphed American economy via monetary policy, should the need arise.

Considering how devastating the Great Recession was, then why indeed. The last Fed rate increase happened more than nine years ago.  Why not wait a little longer and give the US economy a chance to establish a firmer footing, instead of making the same mistake many European central banks made by raising interest rates too soon?

Of course, when the Fed raises short-term rates, the cost of borrowing rises for many who live outside the United States too, as important, international rates like LIBOR tend to follow the Fed's benchmark Fed Funds Target Rate.


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Current Odds

  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at tomorrow's (December 16TH, 2015) FOMC monetary policy meeting: 81% (somewhat likely.)

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  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at the January 27TH, 2016 FOMC monetary policy meeting: 84% (somewhat likely.)

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  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at the March 16TH, 2016 FOMC monetary policy meeting: 90% (likely.)

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  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at the April 27TH, 2016 FOMC monetary policy meeting: 91% (likely.)

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  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at the June 15TH, 2016 FOMC monetary policy meeting: 94% (likely.)

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  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at the July 27TH, 2016 FOMC monetary policy meeting: 95% (very likely.)

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  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at the September 21ST, 2016 FOMC monetary policy meeting: 97% (very likely.)

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  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at the November  2ND, 2016 FOMC monetary policy meeting: 97% (very likely.)

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  • NB: US Prime Rate = (The Fed Funds Target Rate + 3)

The odds related to fed fund futures contracts -- widely accepted as the best predictor of what the FOMC will do with the benchmark Fed Funds Target Rate -- are constantly changing, so stay tuned for the latest odds.

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Saturday, December 05, 2015

Fed Fund Futures Have Odds At 79% (Somewhat Likely) The U.S. Prime Rate Will Rise on December 16, 2015

Prime Rate Forecast - Predictions - www.FedPrimeRate.com
Prime Rate Forecast - Predictions
Latest Prime Rate Forecast

As of right now, the investors who trade in fed fund futures via the CME Group have odds at 79% (as implied by current pricing on contracts) that the Federal Open Market Committee (FOMC) will vote to raise the benchmark Fed Funds Target Rate by at least 25 basis points (0.25 percentage point) at the December 16TH, 2015 monetary policy meeting (somewhat likely.)

The odds on a Fed rate hike 11 days from now -- which would be the first increase for the Fed Funds Target Rate since June 29, 2006 -- rose after investors had a chance to digest yesterday's November jobs report.

Contributing to the latest odds: recent words from Fed boss Janet Yellen, like these...



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Current Odds

  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at the December 16TH, 2015 FOMC monetary policy meeting: 79% (somewhat likely.)

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  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at the January 27TH, 2016 FOMC monetary policy meeting: 82% (somewhat likely.)

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  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at the March 16TH, 2016 FOMC monetary policy meeting: 92% (likely.)

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  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at the April 27TH, 2016 FOMC monetary policy meeting: 93% (likely.)

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  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at the June 15TH, 2016 FOMC monetary policy meeting: 96% (very likely.)

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  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at the July 27TH, 2016 FOMC monetary policy meeting: 97% (very likely.)

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  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at the September 21ST, 2016 FOMC monetary policy meeting: 98% (very likely.)

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  • Current odds that the Prime Rate (currently 3.25%) will rise by at least 25 basis points at the November  2ND, 2016 FOMC monetary policy meeting: 98% (very likely.)

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  • NB: US Prime Rate = (The Fed Funds Target Rate + 3)

The odds related to fed fund futures contracts -- widely accepted as the best predictor of what the FOMC will do with the benchmark Fed Funds Target Rate -- are constantly changing, so stay tuned for the latest odds.

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