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

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 21^ST, 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 21^ST.

Here's a quote from Chair Yellen's August 26^TH 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 21^ST, 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 2^ND, 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 14^TH, 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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