Futures Market 100% Certain U.S. Prime Rate Will Remain At 3.25% Into November of 2011

The next three Federal Reserve (Fed) monetary policy meetings are June 22, August 9 and September 20. As of today, the fed funds futures market is 100% certain that the Fed will opt to leave short-term rates (including the US Prime Rate) at their current levels at all 3 meetings. That means Prime Rate is extremely likely to remain at the current 3.25% into November of this year (the second-to-last monetary policy meeting is set for November 2, 2011.)

The economy is expanding, and many American companies are sitting on massive mountains of cash. But we've still got a long way to go.

• Earlier today, the Labor Department reported that American companies added 54,000 nonfarm jobs to the economy last month. Wall Street was expecting around 170,000 for May. Bottom line: the unemployment rate (currently @ 9.1%) isn't going to improve in a significant way unless 250,000 - 300,000 jobs are created month after month. On Thursday, we learned that 7,682,830 Americans are collecting jobless benefits.
• On May 31, we learned that home prices are still moving in the wrong direction. Here's a clip from the S&P/Case-Shiller report:
  
  

  "... Data through March 2011, released today by Standard & Poor’s for its
  S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after having fallen 3.6% in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter’s data and posted an annual decline of 5.1% versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels..."

• Recently, so much money has been moving to the safety of government debt that from May 6 - May 9, investors were willing to lending cash to the federal government for 3 months, and make no return on their money (demand pushes Treasury yields down.) Consumers can borrow @ 0% and spend on...whatever. Why not the Uncle Sam, eh?
  
  On Wednesday, the yield on the 10-year Treasury Note closed below the 3% mark (2.97% to be exact.)
• Stocks have been retreating from their recent, April 29 crest. The Dow Jones Industrial Average (DJIA) closed @ 12,810.54 back then; today's close was 12,151.26. That's a decline of 659.28 points, or -5.146%.
  
  The broader S&P 500 closed @ 1,363.61 on April 29; today's close was 1,300.16. That's a decline of 63.45 points, or -4.653%.

On a positive note, stocks are still in positive territory for the year. For 2011, the DJIA is up 573.75 points (+4.956%), while the S&P 500 Index is up 42.52 points (+3.381%)

OK, let's get back to the depressing stuff, with our latest bear market update.

Since closing with record highs on October 9, 2007, the DJIA has given up 2,013.27 points (-14.213%), while the S&P 500 Index has dropped 264.99 points (-16.931%). The record high for the DJIA is 14,164.53; for the S&P 500 Index it's 1,565.15.

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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 100% (as implied by current pricing on contracts) that the Federal Open Market Committee (FOMC) will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the June 22^ND, August 9^TH and September 20^TH FOMC monetary policy meetings.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the June 22^ND, August 9^TH and September 20^TH FOMC monetary policy meetings are adjourned: 100% (certain)
• 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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Futures Market 100% Certain U.S. Prime Rate Will Remain At 3.25% Into May of 2011

The next three Federal Reserve (Fed) monetary policy meetings are January 26, March 15 and April 27. As of today, the fed funds futures market is 100% certain that the Fed will do nothing with short-term rates at all 3 meetings. Translation: the US Prime Rate is extremely likely to remain at the current 3.25% well into spring. Great news for borrowers and those with existing debt tied to Prime. Unfortunately, however, it's also a very strong indication that the economy isn't going to improve in a significant way before summer 2011.

Stocks did OK last year, but the Bear is still very much with us.

For 2010, the Dow Jones Industrial Average (DJIA) enjoyed a yearly gain of 1,149.46 points (+11.023%) to finish @ 11,577.51, while the broader S&P 500 Index added 142.54 points (+12.783%) to finish @ 1,257.64.

Not bad, right? OK, now for the reality check.

Since closing with record highs on October 9, 2007, the DJIA has shed 2,587.02 points (-18.264%), while the S&P 500 Index has shaken off 307.51 points (-19.647%). The record high for the DJIA is 14,164.53; for the S+P 500 Index it's 1,565.15.

On December 31, 1999, the S+P 500 Index closed @ 1,469.25, and the DJIA ended the day @ 11,497.12.

My apologies for the buzzkill! Actually, the above numbers aren't so bad when you consider how they looked at our last bear market update.

All the best for 2011!

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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 100% (as implied by current pricing on contracts) that the Federal Open Market Committee (FOMC) will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the January 26^TH, March 15^TH and April 27^TH monetary policy meetings.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the January 26^TH, March 15^TH and April 27^TH FOMC monetary policy meetings are adjourned: 100% (certain)
  
• 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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Futures Market 100% Certain U.S. Prime Rate Will Hold At 3.25% After The April 28 FOMC Monetary Policy Meeting

For certain, Americans are starting feel prosperous again.

Yesterday, the Commerce Department reported that consumer spending increased by 0.3% last month, the fifth-straight month in positive territory. Today, the Conference Board reported that its Consumer Confidence Index (CCI) rose from 46.0 for February to 52.5 for this month.

The Fed is going to cease buying mortgage-backed securities (MBS) tomorrow (Wednesday.) That, in turn, will likely cause mortgage rates to rise steadily over time. Not good news for the beleaguered housing market.

With the DJIA almost back to the 11,000 mark again, it's no wonder that Americans are feeling optimistic about their financial circumstances. So I guess it's time for a reality check, in the form of a bear-market update.

Since closing with record highs on October 9, 2007, the DJIA has now lost 3,257.11 points (22.995%), while the broader S + P 500 Index has shed 391.88 points (25.038%). The record high for the DJIA is 14,164.53; for the S + P 500 Index it's 1,565.15. Earlier today, the DJIA closed at 10,907.42, which is just about where is settled on June 7, 1999 (10,909.38).

Earnings season is just around the corner, and expectations are high. According to Thomson Reuters, companies in the S + P 500 Index are projected to report earnings growth of 36%, with revenue growth expanding by 10%. If the prognosticators got it right, we may see the DJIA reaching for 12,000 by Xmas 2010.

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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 100% (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 April 28^TH, 2010 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 April 28^TH, 2010 FOMC monetary policy meeting is adjourned: 100% (certain)
• 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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Futures Market 98% Certain U.S. Prime Rate Will Hold At 3.25% After The August 11 Monetary Policy Meeting

It's been a volatile week in equities markets, so we're going to mix this Prime Rate forecast with a bear market update.

Since closing with record highs on October 9, 2007, the DJIA has now lost 6,018.01 points (42.486%), while the S&P 500 Index has shed 686.02 points (43.831%). The record high for the DJIA is 14,164.53; for the S&P 500 Index it's 1,565.15.

Year-to-date, the DJIA is down 629.87 points (7.177%), while the S&P 500 is down 24.12 points (2.67%).

OK, so now for some positive bear-market news: since the bear-market low of March 6, 2009, the DJIA is up by 1,519.58 points (22.93%), while the S&P 500 is up by 195.75 points (28.644%).

• There's also good news from an energy perspective: crude oil for future delivery closed at $59.89 per barrel in New York today. On July 11, 2008, crude closed at $145.08 per barrel. That's a year-over-year decline of $85.19 (58.719%). No one wants high energy prices to slow down an already drawn-out economic recovery, so most of the economic world is hoping that crude oil prices remain tame. However, lower oil prices also mean that global demand for energy is relatively weak, which could mean that a return to prosperity may be further down the road than many economists are currently predicting.
  
• There was also some halfway decent news from the Labor Department yesterday. Though the unemployment rate for June 2009 was reported at 9.5% in a previously released Labor Department report -- and will likely rise this month -- new claims for unemployment benefits dipped below the 600K mark for the first time in countless weeks. For the week that ended on July 4, 2009, 565,000 Americans applied for jobless benefits. This news, however, was tempered by fact that continuing claims for jobless benefits surged by 159,000 to 6,883,000.

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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 98% (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 August 11^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 August 11^TH, 2009 FOMC monetary policy meeting is adjourned: 98% (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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