Futures Market 97% Certain Prime Rate Will Hold At 3.25% After The June 24 FOMC Meeting

A week ago, the Federal Reserve released the results of the Supervisory Capital Assessment Program (SCAP), commonly known as the U.S. bank stress test. The goal of the stress test was determine if America's biggest banks have enough capital to continue operating normally if the recession gets worse than economists are currently projecting. Nineteen of America's largest financial institutions were put to the test to see if they would be able to provide consumers and businesses with credit while concurrently contending with losses. The results are summarized in the following graphic:

Federal Reserve Bank Stress Test, May 2009

Image courtesy: CBS News

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As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 97% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the June 24^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the June 24^TH, 2009 FOMC monetary policy meeting is adjourned: 97% (very likely)
• NB: U.S. Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to federal-funds futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are constantly changing, so stay tuned for the latest odds.

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