Odds At 92.8% (Very Likely) The U.S. Prime Rate Will Remain At 3.5% After The November 2, 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 92.8% (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 2^ND, 2016 monetary policy meeting (very 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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Odds were little changed after Fed chair Janet Yellen's dovish comments in Boston today.  Clips:

"...If we assume that hysteresis is in fact present to some degree after deep recessions, the natural next question is to ask whether it might be possible to reverse these adverse supply-side effects by temporarily running a 'high-pressure economy,' with robust aggregate demand and a tight labor market. One can certainly identify plausible ways in which this might occur. Increased business sales would almost certainly raise the productive capacity of the economy by encouraging additional capital spending, especially if accompanied by reduced uncertainty about future prospects. In addition, a tight labor market might draw in potential workers who would otherwise sit on the sidelines and encourage job-to-job transitions that could also lead to more-efficient -- and, hence, more-productive -- job matches.  Finally, albeit more speculatively, strong demand could potentially yield significant productivity gains by, among other things, prompting higher levels of research and development spending and increasing the incentives to start new, innovative businesses..."

"...With nominal short-term interest rates at or close to their effective lower bound in many countries, the broader question of how expectations are formed has taken on heightened importance. Under such circumstances, many central banks have sought additional ways to stimulate their economies, including adopting policies that are directly aimed at influencing expectations of future interest rates and inflation. The unusually explicit and extended guidance about the likely future path of the federal funds rate that was provided by the FOMC from 2011 through 2014 is an example of such a policy, as is the Bank of Japan's upward revision to its official inflation objective in 2013. Moreover, these and other expectational strategies may be needed again in the future, given the likelihood that the global economy may continue to experience historically low interest rates, thereby making it unlikely that reductions in short-term interest rates alone would be an adequate response to a future recession..."

Stay tuned for the latest odds...

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Current Odds

• Current odds the Prime Rate will continue at 3.5% after the November 2^ND, 2016 FOMC monetary policy meeting: 92.8% (very likely) with odds at 7.2%  for 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 14^TH, 2016 FOMC monetary policy meeting: 30.9% (somewhat unlikely), with remaining odds -- 69.1% (somewhat likely) -- for at least one rate increase between now and December 14^TH.
  
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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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