The Odds On Another Prime Rate Increase Fall to 52%

The odds that the Federal Open Market Committee (FOMC) will elect to raise the benchmark Federal Funds Target Rate to 5.50% on August 8^TH have dropped to 52% today, according to current pricing on Fed Funds Futures contracts. The probability of another rate increase dropped as a result of 2 key economic reports released today: The Commerce Department's report on Retail Sales for June, and the University of Michigan's Consumer Sentiment Index for this month. The U.S. economy is exhibiting clear signs of slowing, and the lower-than-expected Consumer Sentiment index for July means that consumers may cut back on spending in the coming months.


Simple Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will rise
  to 8.50% on August 8, 2006: 52%

The odds related to the Fed Funds Futures trade--widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate--are continually changing, so stay tuned to this blog for the latest odds, especially when The FOMC releases the minutes from the June 28-29 FOMC monetary policy meeting, which should happen on July 20^TH, 2006.


In other Prime Rate news, the Bank of Japan (BOJ) has raised its benchmark lending rate to 0.25 percent, ending a 5+ year policy of virtually free borrowing for Japanese banks. Governor Toshihiko Fukui and Co. are likely to keep interest rates low for the rest of 2006, so as to give the Japanese economy a fighting chance of leaving 7 years of deflation behind.

By size, the Japanese economy is second only to the United States.