The Prime Rate Will Remain At 8.25% After The Fed Meets Tomorrow

The Federal Open Market Committee (FOMC) meets tomorrow to discuss monetary policy, and, as of right now, it is virtually a sure bet that the group will opt to leave interest rates alone. All we need do is examine the data in the latest government reports: Housing Starts are down, and, judging by the numbers in last week's Consumer Price Index (CPI) and today's Producer Price Index (PPI) reports, the Fed should be OK with the current state of inflation.

At my most recent check, the investors who trade in Fed Funds Futures have odds at around 6% (according to current pricing on contracts) that the FOMC will vote to raise the benchmark Fed Funds Target Rate by 25 basis points to 5.50% by the end of 2006. After tomorrow's FOMC monetary policy meeting, there will be 2 more meetings left in 2006: October 24^TH and December 12^TH.


Summary of The Latest Prime Rate Predictions:

• Current odds that the Prime Rate will rise
  to 8.50% tomorrow: negligible (very unlikely)
  
• Current odds that the Prime Rate will rise
  to 8.50% by the end of the year: 6%
  
  
• NB: Prime Rate = (The Fed Funds Target Rate + 3)

The current U.S. Prime Rate (WSJ Prime Rate) is 8.25%.

The odds related to the pricing on Fed Funds Futures contracts -- widely accepted as the best predictor of future monetary policy moves by the FOMC -- are continually changing, so stay tuned for the latest odds.