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Prime Rate

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

Wednesday, June 07, 2006

Fed Funds Futures Traders Now Have Odds at 82% That Another Rate Hike Is Coming on June 29

Judging by separate comments made by Federal Reserve officials Ben Bernanke, Jack Guynn, William Poole, Thomas Hoenig and Susan Bies since Monday, one thing is quite clear: U.S. central bankers are worried about inflation, so much so that they may vote to raise interest rates, despite the fact that the U.S. economy is slowing.

Will the Fed raise the benchmark Fed Funds Target Rate again on June 29? According to the investors who trade in Federal Funds Futures, the answer is: probably. Following comments made today by Federal Reserve Bank of Atlanta President Jack Guynn, odds jumped to 82% (according to this evening's check on current pricing) that the Federal Open Market Committee (FOMC) will vote to raise the benchmark Federal Funds Target Rate by 25 basis points (0.25 percentage point.) Two days ago, odds on another increase were at 74%.

If the FOMC elects to raise the Federal Funds Target Rate to 5.25% on June 29, then the national Prime Rate (Wall Street JournalĀ® Prime Rate) will rise from the current 8.00%, to 8.25%.

The odds related to the Fed Funds Futures trade--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.



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