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Prime Rate

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

Friday, December 07, 2007

A 25 Basis Point Rate Cut Is Currently The Most Likely Outcome for the December 11 FOMC Meeting

The Labor Department released the November jobs figures today, along with revised jobs numbers from October and September. According to the report, 94,000 new, non-farm payrolls were added to the American workforce last month. Not great, but not that bad either. October non-farm payrolls were revised up from 166,000 to 170,000, while September was revised down from 96,000 to 44,000. The unemployment rate held steady at 4.7% for the third-straight month.

The investors who trade in fed funds futures are still 100% certain that the Fed will cut the benchmark Fed Funds Target Rate on Tuesday; today's employment news caused the odds on a 50 basis point (0.50 percentage point) cut to drop to 24%, with the odds on a 25 basis point (0.25 percentage point) cut now at 76%.

The Latest Odds

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 100% (according to current pricing on contracts) that the FOMC will vote to lower the benchmark Federal Funds Target Rate by at least 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 by at least 25 basis points at the December 11TH, 2007 FOMC monetary policy meeting: 100% (certain)

  • 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.

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