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Prime Rate

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

Friday, August 15, 2008

Futures Market 88% Certain Prime Rate Will Remain at 5.00% After September 16 Fed Meeting

Inflation pressure continued to ease this week as the dollar enjoyed another week of gains against the euro. Here's another look at how the dollar and key commodities are doing right now:

  • New York Spot Gold closed at $964.60 on July 11. Today it closed at $786.00 per ounce. That's a decline of $178.6 (18.515%.)

  • Crude oil for future delivery finished at $113.77 per barrel today. Crude hit a record high of $147.27 on July 11; that's a drop of $33.50 (22.747%.)

  • On July 11, the euro bought $1.5937 dollars. Earlier today, the euro bought $1.4688 dollars.

The futures market has odds at 88% 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. 12% 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 88% (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: 88% (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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