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Prime Rate

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

Friday, August 01, 2008

Futures Market 92% Certain Prime Rate Will Remain at 5.00% After August 5 Fed Meeting

The American workforce shrank by 51,000 jobs last month, according to the Labor Department's employment situation report released earlier today. The unemployment rate rose to 5.7%.

The American economy hasn't added jobs since last December.

With the whole nation complaining about rising prices, there's no question that more than a few economists within the Federal Reserve system would like to see the Federal Open Market Committee (FOMC) raise short-term rates when the group meets on August 5TH. However, with an economy that's still hemorrhaging jobs, it's very likely the Fed will opt to keep rates steady when they release their decision Tuesday afternoon.

The futures market has odds at 92% 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 August 5TH, 2008. 8% in the market are betting that the Fed will raise short-term rates by 25 basis points (0.25 percentage point) on August 5TH.

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 92% (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 August 5TH, 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 August 5TH, 2008 FOMC monetary policy meeting: 92% (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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