Odds At 100% (Certain) The U.S. Prime Rate Will Continue At 4.25% After The July 26, 2017 FOMC Monetary Policy Meeting

Prime Rate Forecast

Latest Prime Rate Forecast

As of right now, the investors who trade in fed fund futures have odds at 100% (as implied by current pricing on contracts) that the Federal Open Market Committee (FOMC) will vote to leave the target range for the benchmark fed funds rate at 1.00% - 1.25% at the July 26, 2017 monetary policy meeting (certain.)

The current Prime Rate, which went into effect on June 15, 2017, is 4.25%.

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

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Yesterday we learned that the median price for a previously occupied home hit an all-time record high at $252,800.  Awesome.

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But weak wage growth is a persistent problem, and contributes much to current disinflation.  The skills gap is the key.  Simple question: How can incomes rise if all too many potential employees don't have the skills to match the many open jobs in the USA? The Labor Department's last count on job openings: 6,044,000.

New York state lawmakers voted to offer free tuition for folks living in the state with household income of 125,000 or less.  New York gets it.

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Adding to disinflation worries: light + sweet crude oil for future delivery is trading at $42.69 per barrel in New York (NYMEX / WTI) right now, and with a oil glut that probably won't go away any time soon, many are betting that the cost of crude will move sideways or get cheaper through the summer. 

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Will tax reform change the game this year?  Don't bet on it...

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Current Odds

• Current odds the U.S. Prime Rate will continue at 4.25% after the July 26^TH, 2017 FOMC monetary policy meeting: 100%  (certain.)
  
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• Current odds the U.S. Prime Rate will continue at 4.25% after the September 20^TH, 2017 FOMC monetary policy meeting: 86.9%  (likely), with remaining odds --  13.1% (unlikely) -- that the U.S. Prime Rate will be at least 25 basis points (0.25 percentage point) higher.
  
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• Current odds the U.S. Prime Rate will continue at 4.25% after the November 1^ST, 2017 FOMC monetary policy meeting: 85.1%  (likely), with remaining odds --  14.9% (unlikely) -- that the U.S. Prime Rate will be at least 25 basis points (0.25 percentage point) higher.
  
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• Current odds the U.S. Prime Rate will continue at 4.25% after the December 13^TH, 2017 FOMC monetary policy meeting: 54.4%  (on the fence), with remaining odds --  45.6% (on the fence) -- that the U.S. Prime Rate will be at least 25 basis points (0.25 percentage point) higher.
  
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• NB: United States Prime Rate = (The Fed Funds Target Rate + 3)

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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Odds At 99.6% (Extremely Likely) The U.S. Prime Rate Will Rise To 4.25% Tomorrow

Prime Rate Forecast

Latest Prime Rate Forecast

As of right now, the investors who trade in fed fund futures have odds at 99.6% (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 from 0.75% - 1.00% to 1.00% - 1.25% tomorrow (extremely likely.)  This rate increase will cause the United States Prime Rate to rise to 4.25%.

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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Current Odds

• Current odds the U.S. Prime Rate will rise to 4.25% tomorrow: 99.6%  (extremely likely), with remaining odds --  0.4% (extremely unlikely) -- that the U.S. Prime Rate will rise to 4.50%.
  
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• NB: United States Prime Rate = (The Fed Funds Target Rate + 3)

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

Prime Rate Forecast

Latest Prime Rate Forecast

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

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Current Odds

• Current odds the U.S. Prime Rate will rise to 4.25% after the June 14^TH, 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 26^TH, 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 20^TH, 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.
  
  ==========

• NB: United States Prime Rate = (The Fed Funds Target Rate + 3)

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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2014 Prime Rate Forecast: Prime Very Likely To Contiue At 3.25% All Year

Here's a clip from today's Federal Open Market Committee (FOMC) monetary policy release:

"...Beginning in January [2014], the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month..."

So the Fed has decided to lift its foot off the money-printing pedal next month, just a little bit, and will buy $75 billion of debt per month, instead of $85 billion.

Wall Street reacted positively to the Fed's decision to begin tapering its bond-buying program, with both the Dow Jones Industrial Average (DJIA) and the S and P 500 Index closing with new record highs today.

Scaling back on bond buying, after all, means that the Fed is confident that the economy will continue to improve.

Wall Street was also cheered by the Fed's solid language regarding short-term rates; another clip:

"...The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal..."

In other words, the Fed is going to keep short-term rates (which includes the US Prime Rate)  in the deep freeze until the economy is very firmly in escape-velocity mode, and is willing to risk some inflation down the road to get there.

The United States Prime Rate is essentially a function of the fed funds target rate:

US Prime Rate = (The Federal Funds Target Rate + 3)

And , at 3-1/4%, the Prime is currently as low as it can go.

Month after month after month of strong, non-farm payrolls, with 2% inflation on the side.  That's what the Fed is looking for.

Earlier today, the FOMC also released projections for the benchmark fed funds target rate.  Out of 17 participants, only 2 are forecasting a increase for the fed funds target rate at some point during 2014, with 15 predicting that the FOMC will leave it where it is right now (range of 0%-0.25%.)

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Dr. Janet L. Yellen

Dr. Janet L. Yellen is set to take over as Fed Boss early next year.

Her challenges are many, and the scrutiny will be intense.  Continuing to steer and eventually complete the economic recovery which Ben Bernanke started will be no picnic, with the headwind of a dysfunctional Congress and a virtually empty toolbox.

But if anyone has the brains and background to get the job done, it's Dr. Yellen.

Ben Bernanke is a clever economist too.

But, despite being an expert on the Great Depression, Dr. Bernanke hasn't been able to get the US economy back to full strength, and he's had four years to try. 

Moreover, Fed Boss Bernanke was late in his reaction to the banking crisis and subsequent housing crash, a tardiness that may have contributed to the protracted nature of the worse recession since the big one back in 1929.

Let's see if Dr. Yellen can figure out how to get banks to stop sitting on their massive piles of cash, and lend to deserving businesses and entrepreneurs.

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Mortgage Rate Forecast

If the economic recovery continues at a strong and sustained pace, investors will continue to rotate out of the safety of government debt, and move to riskier assets like stocks.

If that happens, US Treasury yields will rise, which will cause mortgage rates to rise (rates associated with  30-year, fixed-rate mortgages track very closely with the yield on the Ten-Year U.S. Treasury Note.)

If the recovery peters out, then investors will scramble back to government bonds, and mortgage rates will fall.

Anyone who thinks that they can offer a more accurate prediction of American mortgage rates, will probably try to sell you a popular and vintage bridge in Brooklyn next....

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From the rate watchers here @ www.FedPrimeRate.com: All the best for 2014.

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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 29^TH, March 19^TH and April 30^TH, 2014 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 January 29^TH, March 19^TH and April 30^TH, 2014 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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