United States Prime Rate

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

Thursday, September 22, 2016

Odds At 87.6% (Likely) The U.S. Prime Rate Will Continue At 3.5% After The November 2, 2016 FOMC Monetary Policy Meeting

Prime Rate Forecast
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 87.6% (as implied by current pricing on contracts) that the Federal Open Market Committee (FOMC) will vote leave the target range for the benchmark fed funds rate at 0.25% - 0.5% at the November 2ND, 2016 monetary policy meeting (likely.)

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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Traders are betting the Fed will skip November for a rate increase, and perhaps raise short-term rates at the December 14TH monetary policy meeting, if economic data justify and hike.

If the November 2ND meeting included a press conference, then the odds on a rate hike for that meeting would be higher...But it doesn't.

Does the November election have anything to do with the Fed waiting?  No.  The Fed has changed rates with an impending presidential election before, and there is no reason why they wouldn't do so again.

Today's economic reports included readings on jobs, housing, and The Conference Board's Leading Economic Index®.  Stay tuned...

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Current Odds
  • Current odds the Prime Rate will continue at 3.5% after the November 2ND, 2016 FOMC monetary policy meeting: 87.6% (likely) with 12.4% odds on a 25 basis point (0.25 percentage point) rate increase.

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  • Current odds the Prime Rate will continue at 3.5% after the December 14TH, 2016 FOMC monetary policy meeting: 41.6% (somewhat unlikely), with remaining odds for a rate increase.

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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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Wednesday, September 21, 2016

Sixth FOMC Meeting of 2016 Adjourned: U.S. Prime Rate Continues At 3.5%

FOMC votes to leave short-term rates unchanged; US Prime Rate to continue at 3.5%
U.S. Prime Rate
The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its sixth 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 National or Fed 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 July indicates that the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year. Although the unemployment rate is little changed in recent months, job gains have been solid, on average. Household spending has been growing strongly but business fixed investment has remained soft. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; most 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 expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further. 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 past declines in energy and import prices dissipate and the labor market strengthens further. Near-term risks to the economic outlook appear roughly balanced. 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 Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives. 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; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action were: Esther L. George, Loretta J. Mester, and Eric Rosengren, each of whom 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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Tuesday, September 20, 2016

Odds At 82% (Likely) The U.S. Prime Rate Will Continue At 3.5% After Tomorrow's FOMC Monetary Policy Meeting

Prime Rate Forecast
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 82% (as implied by current pricing on contracts) that the Federal Open Market Committee (FOMC) will vote leave the target range for the benchmark fed funds rate at 0.25% - 0.5% at tomorrow's monetary policy meeting (likely.)

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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Current Odds
  • Current odds the Prime Rate will continue at 3.5% after tomorrow's FOMC monetary policy meeting: 82% (likely) with a 18% chance of a 25 basis point (0.25 percentage point) rate increase.

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  • Current odds the Prime Rate will continue at 3.5% after the November 2ND, 2016 FOMC monetary policy meeting: 76.9% (somewhat likely) with remaining odds for a rate increase.

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  • Current odds the Prime Rate will continue at 3.5% after the December 14TH, 2016 FOMC monetary policy meeting: 40.2% (somewhat unlikely), with remaining odds for a rate increase.

    ========

  • 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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Friday, September 02, 2016

Odds At 79% (Likely) The U.S. Prime Rate Will Continue At 3.5% After The September 21, 2016 FOMC Monetary Policy Meeting

Prime Rate Forecast
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 79% (as implied by current pricing on contracts) that the Federal Open Market Committee (FOMC) will vote leave the target range for the benchmark fed funds rate at 0.25% - 0.5% at the September 21ST, 2016 monetary policy meeting (likely.)

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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There are many on Wall Street and within the Fed who would like to see a rate hike on September 21ST.

Here's a quote from Chair Yellen's August 26TH speech in Jackson Hole, Wyoming:

 "...Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months..."

But it would be difficult for the data-dependent Fed to justify a rate increase this month, because:
  1. The second estimate of GDP for Q2, 2016 was an anemic 1.1%, while GDP for Q1, 2016 was even weaker, at 0.8%.
  2. While this morning's August jobs report was not devastating, with an estimated 151,000 nonfarm jobs created, there was significant weakness in wage growth.  Average hourly earnings rose by a tepid 0.1167%, while growth in the yearly average slowed to 2.4%.
  3. The manufacturing sector contracted during August.
  4. Inflation remains tame, with both the PCE and Core PCE price indexes still stuck below the Fed's 2% target.

Does the Fed want raise short-term rates too soon, and risk causing a slow down in all-important  consumer spending, and make American goods and services less competitive, globally, by strengthening the dollar?  We shall see.  Stay tuned...

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Current Odds
  • Current odds that the Prime Rate will continue at 3.5% after the September 21ST, 2016 FOMC monetary policy meeting: 79% (likely) with a 21% chance of a 25 basis point (0.25 percentage point) rate increase.

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  • Current odds that the Prime Rate will continue at 3.5% after the November 2ND, 2016 FOMC monetary policy meeting: 74.1% (somewhat likely) with remaining odds for a rate increase.

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  • Current odds that the Prime Rate will continue at 3.5% after the December 14TH, 2016 FOMC monetary policy meeting: 45.8% (on the fence), with remaining odds for a rate increase.

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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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