Futures Market 100% Certain Prime Rate Will Hold At 3.25% After The June 24 FOMC Meeting

Back in March of this year, the Fed began buying long-term U.S. Treasury securities with a two-fold objective: a) increased demand would produce lower yields, which would in turn cause the rates associated with 15- and 30-year fixed-rate mortgages to decline, and b) lower yields would also stem the flow of capital to the safety of government debt by souring the Treasury security milk (the government would rather have capital moving to riskier investments like stocks and corporate debt, which would be much better for the economy.)

For a while, it looked like the Fed got exactly what it wanted with regard to mortgage rates. According to the mortgage giant Freddie Mac, the average rate on a 30-year fixed-rate mortgage was 5.47% on December 11, 2008. The average rate dropped below 5% during the winter and spring of this year, declining to 4.78% twice during April.

But now rates may be starting to trend upward. Earlier today, Freddie announced that the average mortgage rate rose from 4.91% last week to 5.29% for the seven-day period that ended today.

So if you've been sitting on the fence waiting for mortgage rates to bottom out before diving into the housing game, you may want to consider jumping in now.

Then again, you may want to take your chances and bet that rates will head south again in the future. That's because the Fed plans to continue buying mortgage-backed securities during the rest of 2009, and long-term Treasury securities into the fall of this year, which will keep downward pressure on rates.

Here's an interesting calculation from the good folks at Bloomberg.com (referring to this week's rate spike that Freddie announced today) :

"...This week’s rate increase translates into an additional $31.79 a month for a buyer purchasing the median-priced U.S. home of $170,200 with a 20 percent down payment..."

For a weekly perspective on mortgage rates, stay tuned to this webpage.

--

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 100% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the June 24^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the June 24^TH, 2009 FOMC monetary policy meeting is adjourned: 100% (certain)
  
  
• NB: U.S. 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.

>  SITEMAP  <