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Prime Rate

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

Friday, August 04, 2006

Fed Meets In 4 Days; Probability of Another Rate Hike Drops to 16% on Employment Report

The Federal Open Market Committee (FOMC) will convene their next monetary policy meeting on August 8, 2006--4 days from today. The August 8 meeting will be the 5TH FOMC monetary policy meeting of 2006, and, as of right now, the pricing on Federal Funds Futures contracts puts odds at about 16% that the FOMC will vote to raise the Target Federal Funds Rate--America's benchmark interest rate-- by 25 basis points to 5.50%.

Yesterday, the odds on another rate hike by the Fed jumped to around 43% as economic forecasters predicted that today's Employment Situation report would show that the U.S. economy added about 150,000 jobs in July. However, forecasters missed the mark, as this morning's report indicated that the economy added 113,000 non-farm payrolls in July. Furthermore, forecasters we're expecting an unemployment rate of 4.6%, but the today's report returned a rate of 4.8%. The employment numbers for July may just be enough to prompt the Fed to stop raising interest rates--or at least take a break from raising rates--on August 8.

Prime Rate Prediction: The Latest Prime Rate Forecast:

  • Current odds that the Prime Rate will rise
    to 8.50% on August 8, 2006: 16%

  • NB: Prime Rate = The Fed Funds Target Rate + 3

The odds related to the pricing on 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 for the latest odds.

Today's Employment Situation report was the last major economic report before the August 8 FOMC meeting, so, according to the latest odds, the Fed probably won't raise interest rates on Tuesday, and if the Fed decides to forgo a rate increase, then the Prime Rate will remain at the current 8.25%.



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