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Prime Rate

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

Sunday, August 10, 2008

Futures Market 78% Certain Prime Rate Will Remain at 5.00% After September 16 Fed Meeting

Wall Street is feeling better about the outlook for inflation, as evidenced by the cost of key commodities and currencies at the week's end:

  • New York Spot Gold ended the week at $855.50; it closed at $964.60 on July 11. That's a decline of $109.10 (11.31%.)

  • Crude oil for future delivery finished at $115.20 per barrel on Friday. Crude hit a record high of $147.27 on July 11; that's a drop of $32.07 (21.776%.) You may have noticed cheaper gas at your favorite station already (I know I have.)

  • On Friday, the euro bought $1.5005 dollars. On July 11, the euro bought $1.5937 dollars. A dime doesn't seem like much but it's a big deal in the currency markets.

For the government's official report on consumer prices, stay tuned for the July Consumer Price Index (CPI) figures which will be released by the Labor Department on Thursday, August 14.


The futures market has odds at 78% that the Federal Open Market Committee (FOMC) will leave the benchmark Fed Funds Target Rate at its current level of 2.0% when the group meets on September 16TH, 2008. 22% in the market are betting that the Fed will raise short-term rates by at least 25 basis points (0.25 percentage point) on September 16TH.

Summary of The Latest Odds

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 78% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark Federal Funds Target Rate at the current 2.0% at the September 16TH, 2008 monetary policy meeting.

Summary of the Latest Prime Rate Forecast:

  • Current odds that the Prime Rate will remain at the current 5.0% after the September 16TH, 2008 FOMC monetary policy meeting: 78% (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 constantly changing, so stay tuned for the latest odds.

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