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Monday, August 08, 2016

Odds At 82% (Likely) The U.S. Prime Rate Will Remain At 3.5% After The September 21, 2016 FOMC Monetary Policy Meeting

Prime Rate Forecast / Prediction
Prime Rate Forecast
Latest Prime Rate Forecast

As of right now, the investors who trade in fed fund futures via the CME Group have odds at 82% (as implied by current pricing on contracts) that the Federal Open Market Committee (FOMC) will vote leave the target range for the benchmark fed funds rate at 0.25% - 0.5% at the September 21ST, 2016 monetary policy meeting (likely.)

The current United States Prime Rate, which went into effect on December 17, 2015, is 3.5%.

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

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Traders are still confident that the Fed will remain on hold with short-term rates at next month's monetary policy meeting, despite a very positive July jobs report.

Reasons?

  1. Initial estimate on second quarter GDP was much weaker than expected.
  2. Economic weakness abroad: Last week, Australia's central bank lowered its benchmark rate to a record-low, while in the UK, Mark Carney and co. not only lowered their benchmark rate to a new record-low, they started a program of buying corporate debt to boot. 
  3. Inflation is still tame.




Stay tuned for the latest odds...

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Current Odds

  • Current odds that the Prime Rate will continue at 3.5% after the September 21ST, 2016 FOMC monetary policy meeting: 82% (likely.)

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  • Current odds that the Prime Rate will continue at 3.5% after the November 2ND, 2016 FOMC monetary policy meeting: 78.6% (somewhat likely.)

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  • Current odds that the Prime Rate will continue at 3.5% after the December 14TH, 2016 FOMC monetary policy meeting: 52.4% (on the fence), with a 40% chance of a 25 basis point (0.25 percentage point) rate increase.

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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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