Prime Rate

also known as the Fed, National or United States Prime Rate,
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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

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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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