Odds At 91.1% (Likely) The U.S. Prime Rate Will Remain At 3.75% After The March 15, 2017 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 91.1% (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 0.5% - 0.75% at the March 15^TH, 2017 monetary policy meeting (likely.)

The current Prime Rate, which went into effect on December 15, 2016, is 3.75%.

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

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From today's January jobs report:

• At 227,000, nonfarm payrolls advanced faster than expected.
• At 2,242,000, the 2016, yearly job gains were better than the Labor Department's original reading.
• The civilian labor force participation rate rose from 62.7% to 62.9%.

But, countering the positive:

• The U-3 (headline) unemployment rate edged up from 4.7 to 4.8%, while the U-6 jobless rate rose from 9.2% to 9.4%.
• For January, and significantly, average hourly earnings for all nonfarm, private employees rose by a disappointing 0.1155%, while the year-on-year hourly figure declined from 2.9% to 2.5%.

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With some influence on the latest odds: January experienced a very modest retreat for the services sector.

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Stay tuned for the latest odds...

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Current Odds

• Current odds the U.S. Prime Rate will remain at the current 3.75% after the March 15^TH, 2017 FOMC monetary policy meeting: 91.1%  (likely), with remaining odds --  8.9% -- that short-term rates will be at least 25 basis points (0.25 percentage point) higher.
  
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• Current odds the U.S. Prime Rate will remain at the current 3.75% after the May 3^RD, 2017 FOMC monetary policy meeting: 69.7%  with remaining odds --  30.3% -- that short-term rates will be at least 25 basis points (0.25 percentage point) higher.
  
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• Current odds the U.S. Prime Rate will remain at the current 3.75% after the June 14^TH, 2017 FOMC monetary policy meeting: 34.3%  with remaining odds --  65.7% (somewhat likely) -- that short-term rates will be at least 25 basis points (0.25 percentage point) higher.
  
  
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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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First FOMC Meeting of 2017 Adjourned: U.S. Prime Rate Holds At 3.75%

Prime Rate

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its first monetary policy meeting of 2017 and, in accordance with our most recent forecast, has voted to leave the benchmark target range for the federal funds rate at 0.50% - 0.75%. Therefore, the United States Prime Rate (a.k.a the Fed Prime Rate) will continue at the current 3.75%, which went into effect on December 15, 2016.

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

Here's a clip from today's FOMC press release (note text in bold):

"...Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate stayed near its recent low. Household spending has continued to rise moderately while business fixed investment has remained soft. Measures of consumer and business sentiment have improved of late. Inflation increased in recent quarters but is still below the Committee's 2 percent longer-run objective. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance.

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, labor market conditions will strengthen somewhat further, and inflation will rise to 2 percent over the medium term. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1/2 to 3/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening 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; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Jerome H. Powell; and Daniel K. Tarullo..."

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