Fourth FOMC Meeting of 2015 Adjourned: U.S. Prime Rate Continues At 3.25%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its fourth monetary policy meeting of 2015 and, in accordance with our most recent forecast, has voted to leave short-term interest rates at their current levels. Therefore, the benchmark target range for the federal funds rate will remain at 0% - 0.25%, and the Wall Street Journal® Prime Rate (a.k.a the U.S., national, WSJ or Fed Prime Rate) will continue at the current 3.25%.

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

"... Information received since the Federal Open Market Committee met in April suggests that economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labor market indicators suggests that underutilization of labor resources diminished somewhat. Growth in household spending has been moderate and the housing sector has shown some improvement; however, business fixed investment and net exports stayed soft. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward 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 anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams..."

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Latest Prime Rate Forecast


As of right now, the investors who trade in fed funds futures at the CME Group have odds at 56% (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 December 16^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: 0%
• Current odds that the Prime Rate will rise by at least 25 basis points at the September 17^TH, 2015 FOMC monetary policy meeting: 19%
• Current odds that the Prime Rate will rise by at least 25 basis points at the October 28^TH, 2015 FOMC monetary policy meeting: 38%
• Current odds that the Prime Rate will rise by at least 25 basis points at the January 27^TH, 2016 FOMC monetary policy meeting: 71%
• Current odds that the Prime Rate will rise by at least 25 basis points at the April 27^TH, 2016 FOMC monetary policy meeting: 89%
• 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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Third FOMC Meeting of 2015 Adjourned: U.S. Prime Rate Remains At 3.25%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its third monetary policy meeting of 2015 and, in accordance with our most recent forecast, has voted to leave short-term interest rates at their current levels. Therefore, the benchmark target range for the federal funds rate will remain at 0% - 0.25%, and the Wall Street Journal® Prime Rate (a.k.a the U.S., national, WSJ or Fed Prime Rate) will continue at the current 3.25%.

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

"... Information received since the Federal Open Market Committee met in March suggests that economic growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated, and the unemployment rate remained steady. A range of labor market indicators suggests that underutilization of labor resources was little changed. Growth in household spending declined; households' real incomes rose strongly, partly reflecting earlier declines in energy prices, and consumer sentiment remains high. Business fixed investment softened, the recovery in the housing sector remained slow, and exports declined. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Although growth in output and employment slowed during the first quarter, the Committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward 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 anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. 

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams..."

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Latest Prime Rate Forecast


As of right now, the investors who trade in fed funds futures at the CME Group have odds at 59% (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 December 16^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: 10%
• Current odds that the Prime Rate will rise by at least 25 basis points at the September 17^TH, 2015 FOMC monetary policy meeting: 27%
• Current odds that the Prime Rate will rise by at least 25 basis points at the October 28^TH, 2015 FOMC monetary policy meeting: 45%
• Current odds that the Prime Rate will rise by at least 25 basis points at the January 27^TH, 2016 FOMC monetary policy meeting: 74%
• Current odds that the Prime Rate will rise by at least 25 basis points at the April 27^TH, 2016 FOMC monetary policy meeting: 92%
• 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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Second FOMC Meeting of 2015 Adjourned: U.S. Prime Rate Continues At 3.25%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its second monetary policy meeting of 2015 and, in accordance with our most recent forecast, has voted to leave short-term interest rates at their current levels. Therefore, the benchmark target range for the federal funds rate will remain at 0% - 0.25%, and the Wall Street Journal® Prime Rate (a.k.a the U.S., national, WSJ or Fed Prime Rate) will continue at the current 3.25%.

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

"...Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. A range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow and export growth has weakened. Inflation has declined further below the Committee's longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of energy price declines and other factors dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward 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. Consistent with its previous statement, the Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams..."

====

Latest Prime Rate Forecast


As of right now, the investors who trade in fed funds futures at the CME Group have odds at 76% (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 December 16^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: 23%
• Current odds that the Prime Rate will rise by at least 25 basis points at the September 17^TH, 2015 FOMC monetary policy meeting: 43%
• Current odds that the Prime Rate will rise by at least 25 basis points at the October 28^TH, 2015 FOMC monetary policy meeting: 64%
• 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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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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