Rate Cut for The March 21, 2007 FOMC Monetary Policy Meeting Now Very Unlikely On Release of December Jobs Report

Earlier today, the Department of Labor's Bureau of Labor Statistics released the Employment Situation Report for December, 2006. The December jobs report can be summed up in one word: strong. According to the Labor Department, a healthy 167,000 new jobs were added to U.S. payrolls last month (Wall Street forecasters were expecting around 100,000 new jobs), and the unemployment rate held steady at an economy-friendly 4.5%.

2006 was a good year from a jobs perspective: for the year, the unemployment rate dropped from 4.9% to 4.5%.

With the all-important U.S. employment situation looking favorable, the Fed is now less likely to lower interest rates before mid-2007.


The Latest Odds

As of right now, Fed Funds Futures traders have odds at around 6% (according to current pricing on contracts) that the Federal Open Market Committee (FOMC) will opt to lower the benchmark Federal Funds Target Rate by 25 basis points at the March 21^ST, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Predictions:

• In all likelihood, the Prime Rate will remain at the current 8.25% after the January 31^ST FOMC monetary policy meeting.
  
• Current odds that the Prime Rate will be cut to
  8.00% on March 21^ST, 2007: 6% (very unlikely)
• Current odds that the Prime Rate will be cut to
  8.00% by June 28^TH, 2007: 52% (on the fence)
  
• NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts -- 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 weblog for the latest odds.