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Prime Rate

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

Friday, June 01, 2007

Prime Rate Very Likely To Remain at 8.25% Through At Least September

A pair of key economic reports were released today: the Employment Situation Report for May and the Institute for Supply Management's purchasing manager's index (PMI). The data in both reports indicate that the U.S. economy is doing OK, which, in turn, means that the Fed is likely to keep short-term interest rates at their current level for the rest of the year.

  • According to the May Employment Situation Report, 157,000 new jobs were added to the American workforce last month (Wall Street forecasters were expecting about 135,000 new jobs), and the unemployment rate held steady at 4.5%.

  • The PMI for May was 55% (any figure above 50% indicates that the manufacturing sector of the U.S. economy is expanding.)

The Latest Odds

As of right now, the investors who trade in Fed Funds Futures have odds at 0% (according to current pricing on contracts) that the FOMC will opt to lower the benchmark Federal Funds Target Rate by 25 basis points at the September 18TH, 2007 monetary policy meeting.

Summary of the Latest Prime Rate Forecast:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the June 28TH, August 7TH and September 18TH FOMC monetary policy meetings.

  • NB: Prime Rate = (The Federal 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 for the latest odds.

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