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Prime Rate

also known as the Fed, National, U.S. and WSJ Prime Rate

Friday, May 05, 2006

0.25 Percentage Point Increase to The Prime Rate Very Likely on May 10

With the next Federal Open Market Committee (FOMC) monetary policy meeting just 5 days away, it's probably a good time to post the latest Prime Rate predictions.

The Latest Odds Related to Future Prime Rate Increases

The investors who trade in Federal Funds Futures are still predicting with odds at a confident 100% (according to current pricing) that the FOMC will raise the benchmark Fed Funds Target Rate by another 0.25 percentage points when The FOMC convenes their third monetary policy meeting for 2006 on May 10th. A quarter point increase to the benchmark Fed Funds Target Rate would, of course, trigger a nationwide Prime Rate increase from the current 7.75%, to 8.00%.

The odds on another 0.25 percentage point increase after the FOMC adjourns their fourth monetary policy meeting for 2006, which is set to convene on June 28-29, 2006, are now "on the fence": Fed Funds Futures traders are now predicting (according to current pricing) a 48% chance that The FOMC will raise the benchmark Fed Funds Rate by 25 basis points when the June 28-29 meeting adjourns (odds were @ 34% two days ago.)

The odds that have been referenced in this blog entry change on a regular basis, so stay tuned for the latest odds.

The current national Prime Rate (Wall Street JournalĀ® Prime Rate) is 7.75%, and the consensus among investors, economists, academics and Wall Street rate watchers is that the U.S. Prime Rate will rise to 8.00% after the FOMC adjourns their monetary policy meeting on May 10th, 2006.



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