Odds At 11% (Very Unlikely) The U.S. Prime Rate Will Rise At The June 15, 2016 FOMC Monetary Policy Meeting

Prime Rate Forecast

Latest Prime Rate Forecast

As of right now, the investors who trade in fed fund futures via the CME Group have odds at 11% (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 June 15^TH, 2016 monetary policy meeting (very unlikely.)

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

NB: U.S. Prime Rate = (The Fed Funds Target Rate + 3)

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The latest odds were influenced by recent economic data, including readings on GDP, inflation, jobs, US Treasury yields, and consumer sentiment.

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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 June 15^TH, 2016 FOMC monetary policy meeting: 11% (very unlikely.)
  
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• Current odds that the Prime Rate (currently 3.5%) will rise by at least 25 basis points at the July 27^TH, 2016 FOMC monetary policy meeting: 28% (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 September 21^ST, 2016 FOMC monetary policy meeting: 41% (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 November  2^ND, 2016 FOMC monetary policy meeting: 44% (on the fence.)
  
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• NB: United States Prime Rate = (The Fed Funds Target Rate + 3)

The odds associated with 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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Third FOMC Meeting of 2016 Adjourned: U.S. Prime Rate Holds At 3.5%

U.S. Prime Rate

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its third monetary policy meeting of 2016 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 0.25% - 0.5%, and the United States Prime Rate (a.k.a the Fed, national, or WSJ Prime Rate) will continue at the current 3.5%.

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

"...Information received since the Federal Open Market Committee met in March indicates that labor market conditions have improved further even as growth in economic activity appears to have slowed. Growth in household spending has moderated, although households' real income has risen at a solid rate and consumer sentiment remains high. Since the beginning of the year, the housing sector has improved further but business fixed investment and net exports have been soft. A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and falling prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

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 expand at a moderate pace and labor market indicators will continue to strengthen. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but 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 closely monitor inflation indicators and global economic and financial developments.

Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, 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; James Bullard; Stanley Fischer; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo. Voting against the action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent..."

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Odds At 0% (Extremely Unlikely) The U.S. Prime Rate Will Rise At Tomorrow's FOMC Monetary Policy Meeting

Prime Rate Forecast

Latest Prime Rate Forecast

As of right now, the investors who trade in fed fund futures via the CME Group have odds at 0% (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 tomorrow's monetary policy meeting (extremely unlikely.)

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

NB: U.S. Prime Rate = (The Fed Funds Target Rate + 3)

===

The latest odds were influenced by recent economic data, including readings on US Treasury yields, consumer confidence, inflation, jobs, wages, GDP, crude oil, manufacturing, housing and consumer sentiment.

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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 April 27^TH, 2016 FOMC monetary policy meeting: 0% (extremely unlikely.)
  
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• Current odds that the Prime Rate (currently 3.5%) will rise by at least 25 basis points at the June 15^TH, 2016 FOMC monetary policy meeting: 23% (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 July 27^TH, 2016 FOMC monetary policy meeting: 37% (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 September 21^ST, 2016 FOMC monetary policy meeting: 49% (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 November  2^ND, 2016 FOMC monetary policy meeting: 53% (on the fence.)
  
  ========
  
  
• NB: United States Prime Rate = (The Fed Funds Target Rate + 3)

The odds associated with 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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Odds At 5% (Very Unlikely) The U.S. Prime Rate Will Rise At The April 27, 2016 FOMC Monetary Policy Meeting

Prime Rate Forecast

Latest Prime Rate Forecast

As of right now, the investors who trade in fed fund futures via the CME Group have odds at 5% (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 April 27^TH, 2016 monetary policy meeting (very unlikely.)

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

NB: U.S. Prime Rate = (The Fed Funds Target Rate + 3)

===

The latest odds were influenced by recent economic data, including readings on inflation, jobs, wages, GDP,  crude oil, manufacturing, housing, consumer confidence, consumer sentiment, and a recent speech by Fed Chair Janet Yellen.  Here's a clip:

"...Looking beyond the near term, I anticipate that growth will also be supported by a lessening of some of the headwinds that continue to restrain the U.S. economy, which include weak foreign activity, dollar appreciation, a pace of household formation that has not kept up with population and income growth and so has depressed homebuilding, and productivity growth that has been running at a slow pace by historical standards since the end of the recession. If these headwinds gradually fade as I expect, the neutral federal funds rate will also rise, in which case it will, all else equal, be appropriate to gradually increase the federal funds rate more or less in tandem to achieve our dual objectives. Otherwise, monetary policy would eventually become overly accommodative as the economy strengthened.

Implicitly, this expectation of fading headwinds and a rising neutral rate is a key reason for the FOMC's assessment that gradual increases in the federal funds rate over time will likely be appropriate. That said, this assessment is only a forecast. The future path of the federal funds rate is necessarily uncertain because economic activity and inflation will likely evolve in unexpected ways. For example, no one can be certain about the pace at which economic headwinds will fade. More generally, the economy will inevitably be buffeted by shocks that cannot be foreseen. What is certain, however, is that the Committee will respond to changes in the outlook as needed to achieve its dual mandate..."

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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 April 27^TH, 2016 FOMC monetary policy meeting: 5% (very unlikely.)
  
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• Current odds that the Prime Rate (currently 3.5%) will rise by at least 25 basis points at the June 15^TH, 2016 FOMC monetary policy meeting: 26% (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 July 27^TH, 2016 FOMC monetary policy meeting: 40% (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 September 21^ST, 2016 FOMC monetary policy meeting: 51% (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 November  2^ND, 2016 FOMC monetary policy meeting: 55% (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 December  14^ND, 2016 FOMC monetary policy meeting: 66% (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 February 1^ST, 2017 FOMC monetary policy meeting: 68% (somewhat likely.)
  
  ========
  
  
• NB: US Prime Rate = (The Fed Funds Target Rate + 3)

The odds associated with 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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