Odds At 95.4% (Extremely Likely) The U.S. Prime Rate Will Rise To 3.75% At The December 14, 2016 FOMC Monetary Policy Meeting

Prime Rate Forecast

Latest Prime Rate Forecast

As of right now, the investors who trade in fed fund futures have odds at 95.4% (as implied by current pricing on contracts) that the Federal Open Market Committee (FOMC) will vote raise the target range for the benchmark fed funds rate by 25 basis points (0.25 percentage point), to 0.5% - 0.75%, at the December 14^TH, 2016 monetary policy meeting (extremely likely.)

The current United States Prime Rate, which went into effect on December 17, 2015, is 3.5%.  A 25 basis point rate hike on December 14^TH would cause the U.S. Prime Rate to rise to 3.75%.

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

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Recent and key readings on inflation, housing, jobs and retail sales had strong influence on the latest odds.

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The yield on the 10-Year U.S. Treasury Note has been on the rise, so mortgage rates will rise too.

Here's a recent history on the 10-year yield:

• November 08, 2016: 1.88%

• November 09, 2016: 2.07% 

• November 10, 2016: 2.15% 

• November 14, 2016: 2.23% 

• November 15, 2016: 2.23% 

• November 16, 2016: 2.22% 

• November 17, 2016: 2.29% 

• November 18, 2016: 2.34%  

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Equities continue to soar to new, record-highs.  The Dow Jones Industrial Average (DJIA) closed at 18,956.69 today, while the broader Standard and Poor's 500 Index topped its history at 2,198.18. The NASDAQ Composite closed at 5,368.86.

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Current Odds

• Current odds the U.S. Prime Rate will rise to 3.75% at the December 14^TH, 2016 FOMC monetary policy meeting: 95.4% (extremely likely), with remaining odds -- 4.6% (very unlikely) -- that short-term rates, including the U.S. Prime Rate, will remain at current levels.
  
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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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Odds At 81.1% (Likely) The U.S. Prime Rate Will Rise To 3.75% At The December 14, 2016 FOMC Monetary Policy Meeting

Prime Rate Forecast

Latest Prime Rate Forecast

As of right now, the investors who trade in fed fund futures have odds at 81.1% (as implied by current pricing on contracts) that the Federal Open Market Committee (FOMC) will vote raise the target range for the benchmark fed funds rate by 25 basis points (0.25 percentage point), to 0.5% - 0.75%, at the December 14^TH, 2016 monetary policy meeting (likely.)

The current United States Prime Rate, which went into effect on December 17, 2015, is 3.5%.  A 25 basis point rate hike on December 14^TH would cause the U.S. Prime Rate to rise to 3.75%

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

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Many were betting that markets would react negatively to a Donald Trump victory over Hillary Clinton in the race for the White House.

But today, equities closed with gains, and key treasuries notes were sold, indicating confidence in the future of the U.S. economy.

The Standard and Poor's 500 Index added 23.70 points (+1.108%) to close at 2,163.26, while the Dow Jones Industrial Average (DJIA) gained 256.95 points (+1.402%) to close at 18,589.69.  The NASDAQ Composite Index rose by 57.58 points (+1.109%) to close at 5,251.07.

The yield on the 10-Year U.S. Treasury Note ended at 2.07% today, a yield not seen since January 22.

With no significant bearish drama in markets today, traders are still betting the Fed is on track to raise short-term rates next month.

Stay tuned...

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Current Odds

• Current odds the U.S. Prime Rate will rise to 3.75% at the December 14^TH, 2016 FOMC monetary policy meeting: 81.1% (likely), with remaining odds -- 18.9% (unlikely) -- that short-term rates, including the U.S. Prime Rate, will remain at current levels.
  
  ==========

• 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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Seventh FOMC Meeting of 2016 Adjourned: U.S. Prime Rate Remains At 3.5%

U.S. Prime Rate

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its seventh 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 September 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. Household spending has been rising moderately but business fixed investment has remained soft. Inflation has increased somewhat since earlier this year but is still 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 have moved up but 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 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 continued to strengthen but decided, for the time being, to wait for some 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; Eric Rosengren; and Daniel K. Tarullo. Voting against the action were: Esther L. George and Loretta J. Mester, 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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Odds At 92.8% (Very Likely) The U.S. Prime Rate Will Remain At 3.5% After 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 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 tomorrow's 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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Traders are still betting the Fed will do nothing with short-term rates tomorrow, despite Friday's first estimate on third quarter Gross Domestic Product (GDP), which, at 2.9% annualized, exceeded forecasts.

Yesterday we learned that year-on-year inflation, as measured by the Core PCE Price Index, moved sideways during September, at 1.7%, stubbornly below the Fed's 2% target.

Stay tuned for tomorrow's Fed press release on rates...

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Current Odds

• Current odds the Prime Rate will continue at 3.5% after tomorrow's 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: 22% (unlikely), with remaining odds -- 78% (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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