Odds At 97.9% (Very Likely) The U.S. Prime Rate Will Continue At 4.50% After The January 31, 2018 FOMC Monetary Policy Meeting

Prime Rate Forecast

Prime Rate Forecast

As of right now, odds are at 97.9%  that the Federal Open Market Committee (FOMC) will vote to leave the target range for the benchmark fed funds rate  at 1.25% - 1.50% at the  January 31^ST, 2018 monetary policy meeting (very likely.)

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The current Prime Rate, which went into effect on December 14^TH, 2017 is 4.50%.

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

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Economic data influencing the latest odds include readings on Gross Domestic Product, Inflation, Jobs, Retail Sales, Industrial Production, Housing Starts, The Yield Curve, Consumer Sentiment, Existing Home Sales and New Homes Sales.

Stay tuned...

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Current Odds

• Current odds the U.S. Prime Rate will remain at 4.50% after the January 31^ST, 2018 FOMC monetary policy meeting: 97.9%  (very likely), with 2.1% odds (very unlikely) that the U.S. Prime Rate will rise to 4.75%.
  
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• NB: United States Prime Rate = (The Fed Funds Target Rate + 3)

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United States Prime Rate Rises to 4.50%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its eighth and final monetary policy meeting of 2017, and, in accordance with our latest forecast, has voted to raise the benchmark target range for the federal funds rate from 1.00% - 1.25% to 1.25% - 1.50%.  Therefore, the United States Prime Rate (a.k.a the Fed Prime Rate) is now  4.50%, effective tomorrow (December 14, 2017.)

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

"...Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Averaging through hurricane-related fluctuations, job gains have been solid, and the unemployment rate declined further. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. On a 12-month basis, both overall inflation and inflation for items other than food and energy have declined this year and are running below 2 percent. Market-based measures of inflation compensation remain low; 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. Hurricane-related disruptions and rebuilding have affected economic activity, employment, and inflation in recent months but have not materially altered the outlook for the national economy. Consequently, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong. Inflation on a 12‑month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-1/4 to 1‑1/2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained 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. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant 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.

Voting for the FOMC monetary policy action were Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Patrick Harker; Robert S. Kaplan; Jerome H. Powell; and Randal K. Quarles. Voting against the action were Charles L. Evans and Neel Kashkari, who preferred at this meeting to maintain the existing target range for the federal funds rate..."

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ECONOMIC PROJECTIONS

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Odds At 100% (Certain) The U.S. Prime Rate Will Rise To At Least 4.50% After Tomorrow's FOMC Monetary Policy Meeting

Prime Rate Forecast

Prime Rate Forecast

As of right now, odds are at 100%  that the Federal Open Market Committee (FOMC) will vote to raise the target range for the benchmark fed funds rate by at least 25 basis points (0.25 percentage point) at tomorrow's monetary policy meeting (certain.)

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The current Prime Rate, which went into effect on June 15, 2017, is 4.25%.  A 25 basis point rate increase tomorrow would cause  the U.S. Prime Rate to rise to 4.50%.

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

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Despite the Federal Reserve's preferred inflation measure continuing below the Fed's 2% target, and persistent and serious concerns about wage growth, the FOMC will raise short-term rates tomorrow.

A perfectly valid argument against a rate hike could be: why risk dampening an economic recovery that has taken an inordinate amount of time to gain real strength?  A flattening yield curve adds further support for this.

Stay tuned for tomorrow's FOMC decision and press release...

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Current Odds

• Current odds the U.S. Prime Rate will rise to 4.50% after tomorrow's FOMC monetary policy meeting: 87.6%  (likely), with 12.4% odds (unlikely) that the U.S. Prime Rate will rise to 4.75%.
  
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• NB: United States Prime Rate = (The Fed Funds Target Rate + 3)

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