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Prime Rate

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

Monday, December 11, 2006

Probability of A Rate Cut for The March 21, 2007 FOMC Monetary Policy Meeting Drops to 36% on November Jobs Report

Certain sectors of the economy -- like housing and manufacturing -- are hurting right now, and may continue to decline into 2007. But the employment picture is still pretty darn rosy, which is helping to balance things out.

According to the November Employment Situation report (released this past Friday), the American workforce got 132,000 jobs bigger last month; Wall Street prognosticators were expecting around 100,000 jobs. The unemployment rate rose from 4.4% to 4.5% in November, but that certainly didn't raise any eyebrows.

The Latest Odds

As of right now, Fed Funds Futures traders have odds at around 36% (according to current pricing on contracts) that the Federal Open Market Committee (FOMC) will elect to lower the Federal Funds Target Rate by 25 basis points at the March 21ST, 2007 monetary policy meeting.

Summary of the Latest Prime Rate Predictions:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the December 12TH and January 31ST FOMC monetary policy meetings.

  • Current odds that the Prime Rate will be cut to
    8.00% on March 21ST, 2007: 36% (not likely)

  • Current odds that the Prime Rate will be cut to
    8.00% by May 9TH, 2007: 93% (likely)

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

The odds related to 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 to this weblog for the latest odds.



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