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

Prime Rate

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

Saturday, January 12, 2008

Futures Market Now Certain The Fed Will Cut Rates By 50 Basis Points On January 30

There was good news from the distressed financial sector this week: Bank of America is buying mortgage-origination behemoth Countrywide Financial. Countrywide, which is the nation's #1 home-loan lender, has taken a beating in the wake of the subprime mortgage crisis, and there were rumors that the company might file for bankruptcy.

But the good news about Countrywide wasn't enough to keep the stock market from losing ground this week. In fact, since closing with record highs on October 9, 2007, the Dow Jones Industrial Average (DJIA) has lost 1,558.23 points (11.0%), while the S&P 500 has given up 164.13 points (10.487%). On Friday, New York Spot Gold crept closer to the $900 mark, and the yield on the 10-year treasury note fell to 3.81%.

Right now, the fed funds futures market thinks the economy is looking bad enough that the Fed will take aggressive action when the Federal Open Market Committee (FOMC) releases its decision on interest rates on January 30. The odds that the Fed will cut the benchmark Fed Funds Target Rate by 50 basis points (0.50 percentage point) are currently at a very confident 100%; the market is also betting, at 34% odds, that the Fed will either cut rates before the January 30 meeting, or they will opt for a 75 basis point cut at the end of the month. Those are some pretty intense odds.

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% (as implied by current pricing on contracts) that the FOMC will vote to lower the benchmark Federal Funds Target Rate by at least 50 basis points (0.50 percentage point) at the January 30TH, 2007 monetary policy meeting.

Summary of the Latest Prime Rate Forecast:

  • Current odds that the Prime Rate will be cut by at least 50 basis points at the January 30TH 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 constantly changing, so stay tuned for the latest odds.

Labels: ,



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.