.comment-link {margin-left:.6em;}

Prime Rate

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

Monday, November 26, 2007

Odds On A Rate Cut for the December 11 FOMC Meeting Now At 96%

You may have experienced some manifestation of the credit crunch going on in America's financial markets. Perhaps you were counting on getting a "no documentation" loan to buy your first house, but now find that these loans aren't available in your area. Or maybe the credit limit on your favorite credit card was recently reduced -- or perhaps the interest rate was raised -- even though you have an 800+ credit score and use credit very cautiously.

Hold on to your wallet, because credit markets may get worse before they get better. And to add salt to the proverbial wound, Wall Street has been increasing bets that a recession is lurking in the bushes, waiting for the perfect moment to pounce. Investors continued to move capital to the safety of government bonds today, which resulted in the yield on the benchmark 10-year treasury note dropping to 3.847%, a level not seen in over three years. The Dow Jones Industrial Average (DJIA) fell by 237.44 points, or 1.83%, while the S&P 500 lost 2.32% and the NASDAQ Composite fell by 2.14%. For the DJIA, today marked the first official correction since 2003. For the year, the DJIA is up only 2.249%.

The investors who trade in fed funds futures are now almost certain that the Fed will cut short-term rates again on December 11. If the Fed cuts, the dollar may get weaker against other major currencies; let's hope it doesn't collapse.

The Latest Odds

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 96% (according to current pricing on contracts) that the FOMC will vote to lower the benchmark Federal Funds Target Rate by 25 basis points (0.25 percentage point) at the December 11TH, 2007 monetary policy meeting.

Summary of the Latest Prime Rate Forecast:

  • Current odds that the Prime Rate will be cut to 7.25% after the December 11TH, 2007 FOMC monetary policy meeting: 96% (very likely)

  • NB: U.S. Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to federal-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.

Labels: ,



Anonymous Matthew said...

I started a little prediction contest about whether or not the Fed will make the "holiday" rate cut or not. You're involved (I cited your blog). You can read more about it on the Daylife Blog.

Wednesday, November 28, 2007 12:10:00 AM  
Anonymous Prime Rate said...

> I started a little
> prediction contest...

This is a game that the Fed is playing with Wall Street. The Fed doesn't want the market to "price in" a rate cut for December 11, hence all the talk from Fed officials about no cut for next month. The Fed doesn't want the dollar to sink even lower and crude oil to rise out of control, so they are talking tough for now. But they'll probably have to cut.

The future market has gotten it right for as long as I've been a rate watcher, and we are talking years.

The best forecast based on the fed futures market will be within a few days of the meeting, so stay tuned.

Wednesday, November 28, 2007 12:57:00 AM  
Anonymous Matthew said...

>>The future market has gotten it right for as long as I've been a rate watcher, and we are talking years.<<

I'd say you're currently the favorite in this race. Additionally, I really enjoy how you back yourself up with objectivity and generally support any/all claims. In fact, they can't really be called "claims" at all, they're simple informed statements. That's refreshing. Thank you. We'll be following this with wide eyes.

Wednesday, November 28, 2007 10:51:00 AM  

Post a Comment

Links to this post:

Create a Link

<< Home

Zero Percent Intro APR Balance Transfer Credit Cards

Entire WebLog (Blog) © 2010 American CyberSpace®

This website is not owned by or affiliated with The Wall Street Journal® or Dow Jones & Company.
Information in this website is provided for educational purposes only. The Prime Rate probabilities
and predictions posted in this blog are not financial recommendations or professional advice, and
should not be interpreted as such. The owners of this website make no warranties with respect to any
and all content contained within this website. Consult a financial professional before making important
decisions related to any investment or loan product, including, but not limited to, business loans,
personal loans, education loans, first or second mortgages, credit cards and car loans.