Prime Rate

also known as the Fed, National or United States Prime Rate,
from the interest-rate specialists at www.FedPrimeRate.comSM

Sunday, June 04, 2017

Odds At 94.6% (Very Likely) The U.S. Prime Rate Will Rise To 4.25% After The June 14 FOMC Monetary Policy Meeting

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As of right now, the investors who trade in fed fund futures have odds at 94.6% (as implied by current pricing on contracts) that the Federal Open Market Committee (FOMC) will vote to raise the target range for the benchmark fed funds rate to 1.00% - 1.25%, at the June 14 monetary policy meeting (very likely.)

The current Prime Rate, which went into effect on March 16, 2017, is 4.00%.

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

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With a recent and weak reading on GDP, and disinflation in the core, there are arguments that the Fed should do nothing at the next FOMC meeting.

But the Fed will raise short-term rates on June 14. The May jobs report sent mixed massages:


  • 138,000 nonfarm jobs created (meh.)

     
  • Headline (U-3) unemployment down from 4.4% to 4.3% (cool.)

  • Average hourly earnings nudged up by a meager 0.1528% (booo!)

OK, so here's why the Fed will bump: The U-6 unemployment rate declined from 8.6% to 8.4%. This is a level that matches November 2007.  The Great Recession began December 2007.

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U-6 Unemployment Rate
U-6 Unemployment Rate


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Current Odds

  • Current odds the U.S. Prime Rate will rise to 4.25% after the June 14TH, 2017 FOMC monetary policy meeting: 94.6%  (very likely), with remaining odds --  5.4% (not likely) -- that the U.S. Prime Rate will continue at 4.00%.
  • Current odds the U.S. Prime Rate will continue at 4.00% after the July 26TH, 2017 FOMC monetary policy meeting: 5.1%  (not likely), with remaining odds --  94.9% (very likely) -- that the U.S. Prime Rate will be at least 25 basis points (0.25 percentage point) higher.
  • Current odds the U.S. Prime Rate will continue at 4.00% after the September 20TH, 2017 FOMC monetary policy meeting: 3.7%  (not likely), with remaining odds --  96.3% (very likely) -- that the U.S. Prime Rate will be at least 25 basis points (0.25 percentage point) higher.

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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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