2015 Prime Rate Forecast: Current Odds On Rate Increase for October At 64%

Prime Rate Forecast - Predictions

Yep, borrowers, and those with debt, have been enjoying the lowest possible US Prime Rate (3.25%) since December 2008, the peak of the global financial crisis.

A rather secular stretch for sure.

But it looks like the Fed is going to end the super-low-interest-rate party in the fall of this year.

Current odds that the Fed will raise the Prime Rate to at least 3.5% at the October 28 FOMC monetary policy meeting are at 64%, with odds of it happening at the December 16 meeting at 75%.

Hard to Stoke Inflation with Low Oil Prices

Right now, WTI light sweet crude oil, for future delivery, is trading at $45.15 per barrel in New York.  It was $97.49 on January 31, 2014.

Great news for most of us, but there are many on Wall Street who are not happy with this.

Wall Street wants short-term interest rates, and inflation, to rise, and reasonable energy prices throws a heavy spanner into the Fed's reflation works.

The Fed wants inflation at 2%, but with current energy prices, the FOMC may have to wait longer than anticipated to attain that inflation goal.

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Venezuela is hating current crude prices.  Their crude-oil-entitlement economy is extremely entrenched, and the government would have institute major reforms to fix that culture (not likely!)


The Saudis, on the other hand,  are happy that oil is cheap.  Saudi King Abdullah died recently, but his successor will continue with his policy of keeping production high, despite a global glut.

Smart.  Why?  When crude was $100+ per barrel, America responded with fracking, buying efficient cars like turbo-diesels, hybrids and full electrics, and a general desire to reduce drastically dependence on foreign oil.  Not good for the Saudi oil economy, in the long term.  The Saudi want us to return to driving Hummers and Ford Expeditions.

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Is Janet Yellen Strong Enough to Resist Wall Street?

Back in mid-2011, when the European Central Bank (ECB), under the leadership of Jean-Claude Trichet, made the huge mistake of raising short-term rates in the eurozone before an economic recovery was solid -- BANG!  The unemployment rate in the euro area shot up like a rocket.  Believe it!


If Fed boss Dr. Janet Yellen makes the same mistake and starts raising rates here while many middle-class, American households are still dealing with the affects of the 2008 financial crisis and subsequent Great Recession, watch how quickly our fragile economic recovery goes BOOM here too.

Current ECB boss Dr. Mario Draghi just sent a clear message to the world by instituting a massive quantitative easing program (printing money out of thin air and using it to buy debt): The euro area is in really bad economic shape, and needs very serious help to stave off deflation.

This, of course, caused the euro to fall against the dollar, making goods produced in the eurozone more competitive here in the USA.  This translates to downward pressure on American Gross Domestic Product (GDP), and jobs.

Hope you have the right priorities Dr. Yellen...Really hope.

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Summary of the Latest Prime Rate Forecast:

As of right now, the investors who trade in fed funds futures at the CME Group have odds at 64% (as implied by current pricing on contracts) that the FOMC will vote to raise the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at the October 28^TH, 2015 monetary policy meeting.

• Current odds that the Prime Rate will rise by at least 25 basis points at the July 29^TH, 2015 FOMC monetary policy meeting: 31%
• Current odds that the Prime Rate will rise by at least 25 basis points at the September 17^TH, 2015 FOMC monetary policy meeting: 44%
• Current odds that the Prime Rate will rise by at least 25 basis points at the December 16^TH, 2015 FOMC monetary policy meeting: 75%
• NB: US 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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