Futures Market 100% Certain U.S. Prime Rate Will Hold At 3.25% After The November 4 FOMC Monetary Policy Meeting

The Federal Depositors Insurance Corporation (FDIC) recently updated its list of failed banks. So far this year, 106 banks have failed, and it's a very safe bet that there will be more failures before the year is out.

Crossing the 100 mark is a significant event, but it should also be put into perspective. Back in 1989, when the Savings and Loan crisis was in full swing, 534 financial institutions failed. FDIC boss Sheila Bair made sure to remind us of this in a recent YouTube clip:



If you have $250,000 or less on deposit at your bank, then you have nothing to worry about. If you have more than $250K on deposit, then you may want to check out a useful tool the FDIC has on its website. It's the Electronic Deposit Insurance Estimator (EDIE), and you can use it too see if all your money is covered. You can find EDIE here.

There are some easy options for those who need to get around the $250K insured limit, like opening deposit accounts at different banks, or using the Certificate of Deposit Account Registry Service® (CDARS).

--

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 leave the benchmark target range for the Federal Funds Rate at its current level at the November 4^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the November 4^TH, 2009 FOMC monetary policy meeting is adjourned: 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.

>  SITEMAP  <

Futures Market 98% Certain U.S. Prime Rate Will Hold At 3.25% After The November 4 FOMC Monetary Policy Meeting

The Reserve Bank of Australia (RBA), Australia's central bank, has just raised the target for its cash rate by 25 basis points (0.25 percentage point), from 3.00% to 3.25%. Today's news is significant because Australia is the first G20 nation to raise its cardinal short-term interest rate since central banks around the world cut rates aggressively to counter the effects of the global credit crisis. Australia, which is the 14^TH largest economy in the world, last made a move on rates back in April of this year, when the RBA cut the target for it's key rate by 25 basis points.

Australia has weathered the global recession and financial crisis relatively well. The Australian economy grew by 0.6% during Q2 2009, while the United States declined by 0.7% during the same period.

Most economists are forecasting that the Fed will leave rates at record-low levels into 2010. When the Fed does decide to boost short-term rates, the Federal Open Market Committee (FOMC) is very likely to do so aggressively, as there's already an extraordinary amount of cash in the system that will need to be reined in. The Fed is very much aware of the risk of sparking another Great Inflation like the one the U.S. experienced during the 1970's. In the early 80's, Former Fed boss Paul Volcker was forced to raise rates to very high levels to bring inflation under control. The main byproduct of those high rates was a recession.

--

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 98% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the November 4^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the November 4^TH, 2009 FOMC monetary policy meeting is adjourned: 98% (very 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.

>  SITEMAP  <

Futures Market 100% Certain U.S. Prime Rate Will Hold At 3.25% After Tomorrow's Monetary Policy Meeting

The Federal Open market Committee (FOMC) decided to release its decision on short-term rates tomorrow as opposed to today, but it's still an extremely safe bet that the group will vote to leave rates alone. That means the U.S. Prime Rate will remain at 3.25% after tomorrow's afternoon's announcement.

Since the employment picture is still bleak and the overall economy still needs time to return to prosperity, most rate watchers expect the Fed to keep short-rates at current levels into Q1 2010.

The fact the Fed will keep rates on hold tomorrow will come as a surprise to no one, but economists will pay particular attention to the FOMC statement which will accompany tomorrow's press release on rates. It will be interesting to see if the Fed plans on changing its stance on buying mortgage-backed securities and U.S. Treasuries, since pulling back on these programs could have serious consequences for the U.S. housing market. It will also be interesting to see if any FOMC members break from consensus and vote instead for an increase for short-term rates, a development that could portend an end to ultra-low interest rates sooner than most economists are currently predicting.

--

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 leave the benchmark target range for the Federal Funds Rate at its current level at tomorrow's monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after tomorrow's monetary policy meeting is adjourned: 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.

>  SITEMAP  <

Futures Market 100% Certain U.S. Prime Rate Will Hold At 3.25% After The September 22 Monetary Policy Meeting

President Obama has just announced that he is going to reappoint Ben Bernanke to another four-year term as chairman of America's central bank. Bernanke, a Republican, still has to get another stamp of approval from the United States Senate, but will likely be reconfirmed with little opposition. Bernanke has his critics, but many economists have praised the Fed chairman for his handling of the global financial crisis, crediting him for preventing a complete meltdown of the financial system, and for implementing innovative tools which the Fed has used to inject as much liquidity and confidence as possible into flagging financial markets.

I think it's safe to write that years from now, when the current recession is history, the vast majority of economists the world over will credit Bernanke with saving America from another devastating depression.

Here's a clip from President Obama's remarks made moments ago:

"...The man next to me, Ben Bernanke, has led the Fed through the one of the worst financial crises that this nation and this world have ever faced. As an expert on the causes of the Great Depression, I’m sure Ben never imagined that he would be part of a team responsible for preventing another. But because of his background, his temperament, his courage, and his creativity, that’s exactly what he has helped to achieve. And that is why I am re-appointing him to another term as Chairman of the Federal Reserve.

Ben approached a financial system on the verge of collapse with calm and wisdom; with bold action and outside-the-box thinking that has helped put the brakes on our economic freefall. Almost none of the decisions he or any of us made have been easy. The actions we have taken to stabilize our financial system, repair our credit markets, restructure our auto industry, and pass a recovery package have all been steps of necessity, not choice. They have faced plenty of critics, some of whom argued that we should stay the course or do nothing at all. But taken together, this 'bold, persistent experimentation' has brought our economy back from the brink. They are steps that are working. Our recovery plan has put tax cuts in people’s pockets, extended health care and unemployment insurance to those who have borne the brunt of this recession, and is continuing to save and create jobs that otherwise would have been lost. Our auto industry is showing signs of life. Business investment is showing signs of stabilizing. Our housing market and credit markets have been saved from collapse..."

Dr. Bernanke adding some comments as well. Clip:

"...It has been a particular privilege for me to serve with extraordinary colleagues throughout the Federal Reserve System. They have demonstrated remarkable resourcefulness, dedication, and stamina under trying conditions. Through the long nights and weekends and the time away from their families, they have never lost sight of the critical importance of the work of the Fed for the economic well-being of all Americans. I am deeply grateful for their efforts.

I especially want to thank my own family — my wife Anna and our children, Joel and Alyssa. Without their support and sacrifice I could not undertake this task.

The Federal Reserve, like other economic policy makers, has been challenged by the unprecedented events of the past few years. We have been bold or deliberate as circumstances demanded, but our objective remains constant: to restore a more stable economic and financial environment in which opportunity can again flourish, and in which Americans’ hard work and creativity can receive their proper rewards.

Mr. President, I commit today to you and to the American people that, if confirmed by the Senate, I will work to the utmost of my abilities — with my colleagues at the Federal Reserve and alongside the Congress and the Administration — to help provide a solid foundation for growth and prosperity in an environment of price stability..."

--

• In other interest-rate news: Yesterday, the Bank of Israel, which serves as Israel's central bank, opted to raise its benchmark interest rate by 25 basis points (0.25 percentage point) from 0.5% to 0.75% for September 2009. A recent reading on inflation, in the form of the Israeli Consumer Price Index (CPI), show that prices are rising at a pace that would make any central banker nervous. For July, the CPI advanced by 1.1%, while economists were expecting a rise of about 0.85%.
  

--

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 leave the benchmark target range for the Federal Funds Rate at its current level at the September 22^ND, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the September 22^ND, 2009 FOMC monetary policy meeting is adjourned: 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.

>  SITEMAP  <

Futures Market 100% Certain U.S. Prime Rate Will Hold At 3.25% After Tomorrow's Monetary Policy Meeting

Moments ago, the Labor Department released its preliminary report on productivity and unit labor costs for the second quarter of 2009. Nonfarm productivity advanced by 6.4%, while unit labor costs declined by 5.8%. Both figures were annualized and better than what the majority of Wall Street economists were expecting. As you might have guessed, the gains were attributed to reduced hours and layoffs.

Increased productivity and cheaper labor are great news for businesses, as the combo often translates to higher profits. It's great news on a macroeconomic level as well, as it means the Fed doesn't have to worry about elevated labor costs and lower productivity placing upward pressure on inflation. Bottom line: the news gives the Fed more room to leave short-term rates at near zero for as long as it takes to get the economy back on track.

Back in the 1990's, computers and the Internet helped businesses become more productive, so much so that the Fed was able to keep short-term rates steady while the economy continued to grow and the jobless rate remained low. Without the increase in productivity, the Fed probably would have had to raise short-term rates between 1996 and 1999, to contain the inflation that very likely would have taken hold.

--

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 leave the benchmark target range for the Federal Funds Rate at its current level at tomorrow's monetary policy meeting.

Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after tomorrow's FOMC monetary policy meeting is adjourned: 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.

>  SITEMAP  <

Futures Market 99% Certain U.S. Prime Rate Will Hold At 3.25% After The August 11 Monetary Policy Meeting

On Friday, the Federal minimum wage will rise from $6.55 per hour to $7.25. The timing of this increase couldn't be worse, in my opinion, as small businesses across the country are already hurting in this deep recession. $0.70 might not seem like much, but for the small business owner who's barely making it -- the one who's already seriously worried about the future; the one who's having a real hard time finding financing; the one who's already been contemplating cutting his or her workforce -- it could mean the difference between keeping 400 employees working full time, or cutting back to 300. Moreover, the labor cost increase will likely prompt many employers to cut back on employee hours. This is no time to throw obstacles in the way of an economic recovery.

Will the increase help the economic recovery? I really don't think so. If you were making minimum wage right now, and all of a sudden you got an extra $39.20 in your pocket each week, would you spend it, knowing that, in this economy, your job could disappear in a flash? Is an extra $156.80 per month going to help that family who got an adjustable rate mortgage (ARM) during the boom -- you know, that mortgage that's about to reset and cause the monthly payment to jump from $1,200 per month to $1,900? Not likely. As a minimum-wage earner who's about to enjoy a slight pay increase, you might take your kids out to McDonald's a little more often, or you might do a little more shopping at the local Wal-Mart. But these two massive corporations are already weathering this recession well, and are likely to continue doing so. They don't need help making money. Small businesses do. America needs to focus on creating new jobs, and keeping small businesses healthy so that business owners keep their employees working.

As of the week that ended on July 4, 2009, there were 6,273,000 continuing claims for unemployment benefits, according to the Department of Labor. A staggering figure.

And then there's the inflation problem. When GDP eventually goes positive, all the money sloshing around in the economy is going to cause the pace of inflation to spike bigtime. A minimum wage increase will only exacerbate the inevitable problems we are going to face with price stability. Inflation will contribute to the dollar getting weaker, and foreign governments may lose faith in our currency.

Congress should postpone this year's minimum wage increase until next summer. The economy should be much improved by then. Moreover, twelve months from now, the billions of dollars of stimulus money that many important players have been waiting for will have had a chance to seep through federal, state and local bureaucracies. Once all that money gets into the hands of business owners, they'll create jobs, lots of jobs, and that should in turn stoke consumer spending.

According to Small Business Administration (SBA) estimates, small businesses account for 60% - 80% of new jobs.

I'm not advocating keeping the minimum wage where it is for the next 5 years. No way. However, I believe strongly that we should raise the minimum wage when we can afford to do so, i.e. when the threat of deflation is long gone and the economy is creating jobs again. The way I see it, increasing the minimum wage now makes it somewhat more likely that we will have to contend with that super ugly mix of stagnant economic growth with high inflation -- also known as stagflation -- which is bad for everybody.

So, just how bad is the current job market? The official national unemployment rate was 9.5% last month, and is widely expected to rise this month. I much prefer to look at the Labor Department's Alternative Measures Of Labor Underutilization table. Scroll down to row 5 and you'll see that the national unemployment rate was actually 10.8% in June, when discouraged and marginally attached workers were factored into the equation. I don't understand why Labor doesn't include these folks in the official rate that everyone, including the mass media, pays attention to, despite the fact that these people are clearly members of the unemployed in America. Here is how Labor defines discouraged and marginally attached workers:

"...Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job..."

I also like to look at the state-by-state numbers. The following are the state-by-state figures for June, sorted by the jobless rate in descending order:

• Michigan: 15.2%
• Rhode Island: 12.4%
• Oregon: 12.2%
• South Carolina: 12.1%
• Nevada: 12%
• California: 11.6%
• Ohio: 11.1%
• North Carolina: 11%
• District Of Columbia: 10.9%
• Kentucky: 10.9%
• Tennessee: 10.8%
• Indiana: 10.7%
• Florida: 10.6%
• Illinois: 10.3%
• Alabama: 10.1%
• Georgia: 10.1%
• Missouri: 9.3%
• Washington: 9.3%
• New Jersey: 9.2%
• West Virginia: 9.2%
• Mississippi: 9%
• Wisconsin: 9%
• Arizona: 8.7%
• New York: 8.7%
• Massachusetts: 8.6%
• Maine: 8.5%
• Alaska: 8.4%
• Delaware: 8.4%
• Idaho: 8.4%
• Minnesota: 8.4%
• Pennsylvania: 8.3%
• Connecticut: 8%
• Colorado: 7.6%
• Texas: 7.5%
• Hawaii: 7.4%
• Maryland: 7.3%
• Arkansas: 7.2%
• Virginia: 7.2%
• Vermont: 7.1%
• Kansas: 7%
• Louisiana: 6.8%
• New Hampshire: 6.8%
• New Mexico: 6.8%
• Montana: 6.4%
• Oklahoma: 6.3%
• Iowa: 6.2%
• Wyoming: 5.9%
• Utah: 5.7%
• South Dakota: 5.1%
• Nebraska: 5%
• North Dakota: 4.2%

--

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 99% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the August 11^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the August 11^TH, 2009 FOMC monetary policy meeting is adjourned: 99% (very 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.

>  SITEMAP  <

Futures Market 98% Certain U.S. Prime Rate Will Hold At 3.25% After The August 11 Monetary Policy Meeting

It's been a volatile week in equities markets, so we're going to mix this Prime Rate forecast with a bear market update.

Since closing with record highs on October 9, 2007, the DJIA has now lost 6,018.01 points (42.486%), while the S&P 500 Index has shed 686.02 points (43.831%). The record high for the DJIA is 14,164.53; for the S&P 500 Index it's 1,565.15.

Year-to-date, the DJIA is down 629.87 points (7.177%), while the S&P 500 is down 24.12 points (2.67%).

OK, so now for some positive bear-market news: since the bear-market low of March 6, 2009, the DJIA is up by 1,519.58 points (22.93%), while the S&P 500 is up by 195.75 points (28.644%).

• There's also good news from an energy perspective: crude oil for future delivery closed at $59.89 per barrel in New York today. On July 11, 2008, crude closed at $145.08 per barrel. That's a year-over-year decline of $85.19 (58.719%). No one wants high energy prices to slow down an already drawn-out economic recovery, so most of the economic world is hoping that crude oil prices remain tame. However, lower oil prices also mean that global demand for energy is relatively weak, which could mean that a return to prosperity may be further down the road than many economists are currently predicting.
  
  
• There was also some halfway decent news from the Labor Department yesterday. Though the unemployment rate for June 2009 was reported at 9.5% in a previously released Labor Department report -- and will likely rise this month -- new claims for unemployment benefits dipped below the 600K mark for the first time in countless weeks. For the week that ended on July 4, 2009, 565,000 Americans applied for jobless benefits. This news, however, was tempered by fact that continuing claims for jobless benefits surged by 159,000 to 6,883,000.

--

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 98% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the August 11^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the August 11^TH, 2009 FOMC monetary policy meeting is adjourned: 98% (very 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.

>  SITEMAP  <

Futures Market 100% Certain Prime Rate Will Hold At 3.25% After The June 24 FOMC Meeting

Back in March of this year, the Fed began buying long-term U.S. Treasury securities with a two-fold objective: a) increased demand would produce lower yields, which would in turn cause the rates associated with 15- and 30-year fixed-rate mortgages to decline, and b) lower yields would also stem the flow of capital to the safety of government debt by souring the Treasury security milk (the government would rather have capital moving to riskier investments like stocks and corporate debt, which would be much better for the economy.)

For a while, it looked like the Fed got exactly what it wanted with regard to mortgage rates. According to the mortgage giant Freddie Mac, the average rate on a 30-year fixed-rate mortgage was 5.47% on December 11, 2008. The average rate dropped below 5% during the winter and spring of this year, declining to 4.78% twice during April.

But now rates may be starting to trend upward. Earlier today, Freddie announced that the average mortgage rate rose from 4.91% last week to 5.29% for the seven-day period that ended today.

So if you've been sitting on the fence waiting for mortgage rates to bottom out before diving into the housing game, you may want to consider jumping in now.

Then again, you may want to take your chances and bet that rates will head south again in the future. That's because the Fed plans to continue buying mortgage-backed securities during the rest of 2009, and long-term Treasury securities into the fall of this year, which will keep downward pressure on rates.

Why Did Mortgage Rates Spike?

The average mortgage rate jumped because investors reacted positively to the not-as-bad-as-expected May employment situation report released by the Labor Department Friday. Wall Street economists were expecting non-farm payrolls to decline by 530,000 last month, but the figure for May came in at 345,000. 345K is still a lots of pink slips, but it’s the softest monthly decline since September of 2008. Investors saw this as sign that an economic recovery may be in the offing, and moved enough capital from the safety of government debt to cause bond yields to spike. As demand for bonds wanes, the yields associated with bonds rises, and as long-term bond yields rise, so do the rates on 30-year FRM's.

Investors are also worried that excessive government spending, combined with the Fed's quantitative easing (a.k.a. printing money), will erode the value of the dollar; that inflation will surge at a pace the Federal Reserve won't be able to manage easily, when the U.S. economy returns to prosperity. Inflation and a weak dollar are both anathema to bond investors.

Here is how the yield on the benchmark 10-year Treasury Note looked over the past 16 days:

• 5 Jun 2009: 3.86%
  
• 4 Jun 2009: 3.72%
  
• 3 Jun 2009: 3.55%
  
• 2 Jun 2009: 3.64%
  
• 1 Jun 2009: 3.71%
  
• 29 May 2009: 3.46%
  
• 28 May 2009: 3.67%
  
• 27 May 2009: 3.69%
  
• 26 May 2009: 3.49%
  
• 22 May 2009: 3.45%
  
• 21 May 2009: 3.35%
  
• 20 May 2009: 3.20%
  
• 19 May 2009: 3.24%
  
• 18 May 2009: 3.21%
  
• 15 May 2009: 3.12%
  
• 14 May 2009: 3.11%
  

Recent economic news that managed to seduce the bull out of recession-weary investors may well have been the siren song of an economic false dawn. During the Great Depression, there were many instances where the economy looked like it was getting better, when in fact economic conditions were only to get worse.

Home values across much of the country probably won't improve in a significant way during 2009, so whether you choose to get a FRM now or wait a few months, you're probably going to get a deal that'll have you smiling for a while.

Here's an interesting calculation from the good folks at Bloomberg.com (referring to this week's rate spike that Freddie announced today) :

"...This week’s rate increase translates into an additional $31.79 a month for a buyer purchasing the median-priced U.S. home of $170,200 with a 20 percent down payment..."

For a weekly perspective on mortgage rates, stay tuned to this webpage.

--

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 leave the benchmark target range for the Federal Funds Rate at its current level at the June 24^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the June 24^TH, 2009 FOMC monetary policy meeting is adjourned: 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.

>  SITEMAP  <

Futures Market 97% Certain Prime Rate Will Hold At 3.25% After The June 24 FOMC Meeting

A week ago, the Federal Reserve released the results of the Supervisory Capital Assessment Program (SCAP), commonly known as the U.S. bank stress test. The goal of the stress test was determine if America's biggest banks have enough capital to continue operating normally if the recession gets worse than economists are currently projecting. Nineteen of America's largest financial institutions were put to the test to see if they would be able to provide consumers and businesses with credit while concurrently contending with losses. The results are summarized in the following graphic:

Image courtesy: CBS News

--

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 97% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the June 24^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the June 24^TH, 2009 FOMC monetary policy meeting is adjourned: 97% (very 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.

>  SITEMAP  <

Futures Market 100% Certain Prime Rate Will Hold At 3.25% After Wednesday's Fed Meeting

The Fed's next decision on short-term interest rates will be on Wednesday, and the futures market is now 100% certain that the Federal Open Market Committee (FOMC) will vote to leave short-term rates at their current levels. This means the U.S. Prime Rate will remain at the current 3.25%.

Rate News from Canada: Overnight Rate Now 0.25%

Last Tuesday, the Bank of Canada, which is Canada's central bank, cut its benchmark overnight target interest rate from 0.5% to 0.25%, which in turn caused the Canadian Prime Rate to drop from 2.50% to 2.25%. Canada's overnight rate is now on par with the Fed's benchmark rate. 0.25% is a brand new record low for Canada's central bank (the bank was founded in 1934) and it's the lowest it can possibly go. Here's a clip from the press release issued last week:

"...In an environment of continued high uncertainty, the global recession has intensified and become more synchronous since the Bank's January Monetary Policy Report Update, with weaker-than-expected activity in all major economies. Deteriorating credit conditions have spread quickly through trade, financial, and confidence channels. While more aggressive monetary and fiscal policy actions are underway across the G20, measures to stabilize the global financial system have taken longer than expected to enact. As a result, the recession in Canada will be deeper than anticipated, with the economy projected to contract by 3.0 per cent in 2009. The Bank now expects the recovery to be delayed until the fourth quarter and to be more gradual. The economy is projected to grow by 2.5 per cent in 2010 and 4.7 per cent in 2011, and to reach its production capacity in the third quarter of 2011. Given significant restructuring in a number of sectors, potential growth has been revised down. The recovery will be importantly supported by the Bank's accommodative monetary stance..."

In other economic news:

• According to the latest Commerce Department report on new home sales, the cost of a brand new home at the end of last month was about the same as it was at the end of 2003. The latest figures were released last Friday, with the median price on a newly built home dropping from $208,700 during February to $201,400 during March. Click here for historical prices and a chart.
  
  
• Preliminary existing home sales figures were released by the National Association of Realtors® last Thursday. The report indicated that the median price on a previously occupied home has increased since the start of 2009:
  
  -- January: $164,800
  -- February: $168,200
  -- March: $175,200
  
  Click here for historical prices and a chart.
  

--

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 leave the benchmark target range for the Federal Funds Rate at its current level at the April 29^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the April 29^TH, 2009 FOMC monetary policy meeting is adjourned: 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.

>  SITEMAP  <

Futures Market 97% Certain Prime Rate Will Hold At 3.25% After The April 29 Fed Meeting

Last Friday, the Labor Department announced that American employers shed another 663,000 jobs last month, and that the unemployment rate rose from 8.1% for February to 8.5% for March. Employers have eliminated over 5 million jobs since the recession began at the end of 2007, and the total number of jobless people in the USA is now 13.2 million.

On Thursday, the Labor Department reported that there were 669,000 new claims from unemployment benefits during the week that ended on March 28, 2009. During the week that ended on March 21, there were 5,728,000 people collecting an unemployment check across the country.

In housing news, the latest S&P/Case-Shiller report on home prices was released last Tuesday. The following are some notable price declines for the January 2008 through January 2009 period:

• San Francisco: -32.4%
  
  
• San Diego: -24.9%
  
  
• Phoenix: -35.0%
  
  
• Miami: -29.4%
  
  
• Los Angeles: -25.8%
  
  
• Las Vegas: -32.5%
  
  
• Detroit: -22.6%
  

Over the past 9 years, Detroit has fared the worst of all the major metropolitan areas. The home price index for Detroit came in at 77.56 for January 2009. The baseline score of 100.00 is associated with home prices during January 2000. So, the price of a typical, single-family home in Detroit was down 22.44% when comparing its price during January 2000 to its price during January 2009. Yikes! In contrast, and for some perspective, the index for the New York City metro area came in at 181.28, which indicates an increase of 81.28% for the same period.


Also from Tuesday, The Conference Board reported that its Consumer Confidence Index (CCI) was a very somber 26.0 during March 2009. For the CCI, the baseline 100.00 score is pegged to 1985 survey data.

--

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 97% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the April 29^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the April 29^TH, 2009 FOMC monetary policy meeting is adjourned: 97% (very 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.

>  SITEMAP  <

Futures Market 94% Certain Prime Rate Will Hold At 3.25% After The April 29 Fed Meeting

The Dow Jones Industrial Average (DJIA) advanced by 497.80 points this week (6.839%) while the broader S&P 500 Index gained 47.40 points (6.168%.) It was the third straight week of gains for the two indices since stocks hit a bear-market low on March 6, 2009. For some perspective, here's our latest bear market update.

Since closing with record highs on October 9, 2007, the DJIA has now given up 6,388.35 points (45.101%), while the S&P 500 Index has declined by 749.21 points (47.868%). The record high for the DJIA is 14,164.53; for the S&P 500 Index it's 1,565.15.

For the year, the DJIA is down 1,000.21 points (11.397%), while the S&P 500 is down 87.31 points (9.666%).

In other economic news:

• On Thursday, the Commerce Department released the final word on the gross domestic product (GDP) for Q4 2008: the U.S. economy shrank by an annualized rate of 6.3% during the last three months of last year.
  
  
• On Friday, the Commerce Department reported that personal income declined by 0.2% during February, while consumer spending advanced by 0.2%.
  
  
• On Monday, the National Association of Realtors® reported that prices on preowned homes improved, but inventories climbed higher. The median price on a used home rose from $164,800 for January to $165,400 for February, while the average price rose from $206,700 for January to $209,700 for February. Inventories -- the number of previously occupied homes for sale at the end of February -- jumped from 3,611,000 for January to 3,798,000 for February.
  
  Click here for historical prices and a chart.
  
  
• On Wednesday, the Commerce Department reported that the median price on a new (never-occupied) home fell from $206,800 during January to $200,900 during February.
  
  Click here for historical prices and a chart.
  

--

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 94% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the April 29^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the April 29^TH, 2009 FOMC monetary policy meeting is adjourned: 94% (very 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.

>  SITEMAP  <

Futures Market Near Certain Prime Rate Will Remain at 3.25% After Tomorrow's FOMC Meeting

The Federal Open Market Committee (FOMC) decided to turn a one-day monetary policy meeting into a two-day meeting, so we'll have an announcement on short-term interest rates tomorrow afternoon. It's a pretty safe bet that the Fed will leave short-term rates, including the Prime Rate, exactly where they are. Only 3% in the fed funds futures market are betting that the Fed will opt to raise short-term rates by at least 25 basis points (0.25 percentage point) tomorrow.

--

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 97% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at tomorrow's monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after tomorrow's FOMC monetary policy meeting is adjourned: 97% (very 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.

>  SITEMAP  <

The Unemployment Rate Is Now 8.1%; Futures Market Still Betting On No Rate Change for March 17

Earlier today, the Labor Department reported that American, non-farm payrolls shrank by 651,000 last month, while the unemployment rate jumped from 7.6% to 8.1%. As of the end of February, there were 12,500,000 unemployed persons in the United States.

Yesterday, the Labor Department reported that there were 639,000 new claims for jobless benefits during the week that ended on February 28. During the week that ended on February 21, there were 5,106,000 people receiving an unemployment check.

Right now, the fed funds futures market is still 94% certain that the Federal Open Market Committee (FOMC) will leave short-term rates, including the U.S. Prime Rate, at current levels when the group adjourns its next monetary policy meeting on March 17^TH.

Other economic news which likely influenced futures traders this week:

• On Tuesday, the Bank of Canada, Canada's central bank, lowered its benchmark interest rate from 1.0% to 0.5%, which in turn caused the country's Prime Rate to drop to 2.5%, a new record low.
  
  
• On Thursday, the European Central Bank (ECB) lowered its benchmark interest rate from 2.0% to 1.50%. The Prime Rate in the eurozone is now the lowest it's been since the ECB was founded in 1998.
  
  
• Also on Thursday, the Bank of England (BoE), the central bank for the United Kingdom, lowered its benchmark interest rate by 50 basis points (0.50 percentage point), from 1.0% to 0.50%. This is a record low for the BoE, which has been around since 1694.
  
  
• Bear Market Update: since closing with record highs on October 9, 2007, the Dow Jones Industrial Average (DJIA) has now lost 7,537.59 points (53.215%), while the broader S&P 500 Index has given up 881.77 points (56.338%). The record high for the DJIA is 14,164.53; for the S&P 500 Index it's 1,565.15.
  
  For the year, the DJIA is down 2,149.45 points (24.491%), while the S&P 500 is down 219.87 points (24.342%).
  
  
• For a brief period during trading today, and for the first time ever, Citigroup (C) became a penny stock. Eventually, Big "C" advanced back up above the dollar mark and closed at $1.03 per share.
  

--

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 94% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the March 17^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the March 17^TH, 2009 FOMC monetary policy meeting is adjourned: 94% (very 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.

>  SITEMAP  <

Futures Market 94% Certain Prime Rate Will Hold At 3.25% After The March 17 Fed Meeting

Yesterday, The Conference Board reported that its Consumer Confidence Index (CCI) dropped from a revised figure of 37.4 for January, to a brand new record low of 25.0 for February. Wall Street economists were expecting a figure of around 35.5 for this month.

For the CCI, the baseline "100" score is linked to 1985 survey data.

The National Association of Realtors® delivered more somber economic news earlier today. Sales of previously occupied homes declined by 5.3% last month. The total number of used homes for sale fell from 3.7 to 3.6 million during January, which is a good thing, but prices continued to slide. The median cost for a preowned home fell from $175,700 to $170,300, while the average price fell from $217,600 to $212,900. Click here for historical prices and a chart.

The Commerce Department will release its report on new home sales tomorrow.

Yesterday, the S&P/Case-Shiller Home Price Indices provided an update of how property values are doing in specific U.S. cities. Notable figures for the December 2007 through December 2008 period can be found below:

• San Francisco: -31.2%
  
  
• San Diego: -24.8%
  
  
• Phoenix: -34.0%
  
  
• Miami: -28.8%
  
  
• Los Angeles: -26.4%
  
  
• Las Vegas: -33.0%
  
  
• Detroit: -21.7%
  
  
• National Index: -18.2%
  

And how are American banks doing? Right now, you can buy Citigroup (C) at $2.62 per share. A year ago, Big "C" was trading at $23.66.

Bank of America (BAC) can be purchased for $4.83 per share. Twelve months ago, BofA stock was trading at $39.70.

Bank failures are occurring at an alarming rate. So far, eight banks have failed during February, and 14 American banks have closed since the beginning of the year.

--

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 94% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the March 17^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the March 17^TH, 2009 FOMC monetary policy meeting adjourns: 94% (very 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.

>  SITEMAP  <

Futures Market 90% Certain Prime Rate Will Hold At 3.25% After The March 17 Fed Meeting

Yesterday, the Labor Department reported that as of the week that ended on January 24, there were 4,788,000 Americans continuing to rely on unemployment benefits, which is a record-high. During the week that ended on January 31, there were 626,000 new claims for jobless benefits.

Earlier today, the Department of Labor delivered more somber news. During January, the unemployment rate jumped from 7.2% to 7.6%, and American nonfarm payrolls shrank by 598,000. Nonfarm payrolls have declined by 3.6 million since December 2007 (that's when this recession officially began.)

Right now, the fed funds futures market has odds at 10% that the Fed will opt to raise short-term rates, including the U.S. Prime Rate, by at least 25 basis points (0.25 percentage point) at the March 17^TH Federal Open Market Committee (FOMC) monetary policy meeting. The remaining 90% of the market is betting that the fed will keep short-term rates at current levels after next month's meeting.

In all likelihood, the following economic news (including the above) had at least some influence on the fed funds futures market recently:

• On Thursday, the Bank of England, which serves as the central bank for the United Kingdom, cut its benchmark interest rate by 50 basis points (0.50 percentage point) to 1.00%. This is an all-time, record low for the UK central bank, which was founded in 1694 to fund the war against Louis XIV's France.
  
  
• On Monday, the Commerce Department reported that consumer spending declined by 1.0% during December 2008, while personal income waned by 0.2%.
  
  
• Also from Monday, the Institute for Supply Management (ISM) reported that its Purchasing Manager's Index (PMI) was 35.6% during January. This was an improvement over the December figure of 32.9%, but still a strong indication that the U.S. manufacturing sector is in decline.
  
  For the PMI, any figure above 50% suggests that, in general, the American manufacturing sector is expanding, while any figure below 50% suggests contraction for a particular month.
  

--

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 90% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the March 17^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the March 17^TH, 2009 FOMC monetary policy meeting adjourns: 90% (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.

>  SITEMAP  <

Prime Will Remain At 3.25% After The FOMC Adjourns Its Monetary Policy Meeting Tomorrow

The fed funds futures market is now a bit less confident that the Fed will vote to leave short-term rates (including the U.S. Prime Rate) at their current levels tomorrow, but it's still a very safe bet that the Fed will leave short-term rates alone. Right now, the futures market has odds at 97% that the Federal Open Market Committee (FOMC) will vote to do nothing with short-term rates. 3% in the market are betting that the Fed will raise rates by at least 25 basis points (0.25 percentage point) tomorrow.

The futures market had plenty of economic news to digest over the past two weeks, and one of the most significant items was released today. [Drum Roll] We now have a new record low value for consumer confidence. Earlier today, The Conference Board reported that for January (this month) the Consumer Confidence Index (CCI) fell to 37.7, while last month's figure was revised down to 38.6. Wall Street was expecting a figure of around 39.0 for the current month. Bottom line: American consumer spending, a major driving force in the global economy, probably isn't going to pick up any time soon.

For the CCI, the baseline "100" score is pegged to 1985 survey data.

In all likelihood, the following recent economic news (including the above) had at least some influence on the fed funds futures market recently:

• A first for Microsoft: the company announced recently that up to 5,000 employees will receive pink slips over the next year and a half. Other major companies announcing layoffs recently: Home Depot, Caterpillar, Sprint Nextel, General Motors, Texas Instruments and Pfizer/Wyeth (pharmaceutical behemoth Pfizer is buying its rival Wyeth in a deal worth $68 billion.)
  
  
• On January 16, The Labor Department reported that consumer prices waned by 0.7% during December 2008. Consumer inflation advanced by a mere 0.1% from 12/07 through 12/08.
  
  The current disinflationary environment (sustained by a protracted recession, rising unemployment, low consumer confidence and consumer spending, continued home price depreciation, etc.) could blossom into full-blown deflation. Deflation is anathema to Fed economists, and rightfully so: watch how the unemployment rate skyrockets if deflation takes hold.
  
  
• Though there was a month-over-month advance for sales of previously occupied homes during December 2008 (+6.5%), prices continued on a downward trend. According to yesterday's report from the National Association of Realtors®, the median price of a preowned home fell to $175,400 last month, while the average price fell to $216,000. Both the median and average cost of a used home have declined each month since June 2008. Click here for historical prices and a chart.
  
  

• 2009 has barely had a chance to crawl out of bed, yet three banks have already failed since the start of this year. Twenty-five banks failed during 2008. For some perspective, 3 banks failed during all of 2007 and there were no bank failures during both 2005 and 2006.
  

--

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 97% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the January 28^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the January 28^TH, 2009 FOMC monetary policy meeting adjourns: 97% (very 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.

>  SITEMAP  <

Futures Market 100% Certain Prime Rate Will Hold At 3.25% After The January 28 Fed Meeting

The fed funds futures market is now 100% certain that the Federal Open Market Committee (FOMC) will vote to leave short-term rates, including the U.S. Prime Rate, at their current levels at the January 28^TH, 2009 monetary policy meeting.

The futures market -- and all of America for that matter -- was expecting a dismal jobs report this morning, and the Labor Department did not disappoint. According to this morning's employment situation report for December, American, nonfarm businesses shed 524,000 jobs last month, and the unemployment rate jumped from the revised November figure of 6.8% to 7.2% for December. The decline in nonfarm payrolls during November, which was originally reported at 533,000, was revised up to 584,000. During December, the total number of jobless Americans rose by 632,000 to 11.1 million.

In all likelihood, the following recent economic news (including the above) had at least some influence on the fed funds futures market this week:

• How does the Fed feel about the employment outlook? For some insight, here's a clip from the minutes of the December 16, 2008 FOMC monetary policy meeting, which was issued last Tuesday:
  
  

  "...All told, real GDP was expected to fall much more sharply in the first half of 2009 than previously anticipated, before slowly recovering over the remainder of the year as the stimulus from monetary and assumed fiscal policy actions gained traction and the turmoil in the financial system began to recede. Real GDP was projected to decline for 2009 as a whole and to rise at a pace slightly above the rate of potential growth in 2010. Amid the weaker outlook for economic activity over the next year, the unemployment rate was likely to rise significantly into 2010, to a level higher than projected at the time of the October 28-29 FOMC meeting. The disinflationary effects of increased slack in resource utilization, diminished pressures from energy and materials prices, declines in import prices, and further moderate reductions in inflation expectations caused the staff to reduce its forecast for both core and overall PCE inflation. Core inflation was projected to slow considerably in 2009 and then to edge down further in 2010..."

  
  
• Also from Tuesday, aluminum giant Alcoa announced that, by the end of 2009, it will issue pink slips to 13,500 employees (13% of its workforce) and will also cut 1,700 contractor jobs. Recently, companies representing a broad cross section of sectors announced plans to cut jobs, including the Bank of America, Boeing, GE Aviation, Schlumberger, Dupont, Walgreens, EMC Corporation and others.
  
  
• Another item from Tuesday: The U.S. Census Bureau, which is part of the Commerce Department, reported that factory orders declined by 4.6% during November 2008. Wall Street economists were expecting a decrease of around 2.5%.
  

--

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 leave the benchmark target range for the Federal Funds Rate at its current level at the January 28^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the January 28^TH, 2009 FOMC monetary policy meeting adjourns: 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.

>  SITEMAP  <

Futures Market 97% Certain Prime Rate Will Hold At 3.25% After The January 28 Fed Meeting

On December 16, the Fed took the unusual and unprecedented step of setting a target range of 0% - 0.25% for the benchmark fed funds rate. With regard to short-term interest rates, the Federal Open Market Committee (FOMC) has virtually no place left to go but up. However, with the threat of deflation still looming over an economy in dire need of stimulus, the Fed will very likely opt to keep America's cardinal interest rate exactly where it is. The futures market currently has odds at 3% that the Fed will opt to raise its benchmark rate by at least 25 basis points (0.25 percentage point) on January 28, with 97% in the market betting that the Fed will vote to leave short-term rates alone.

In all likelihood, the following recent economic news had at least some influence on the fed funds futures market this week:

• According to the S&P/Case-Shiller Home Price indices released yesterday, home values took a significant turn for the worse at the start of the fourth quarter. Here are some notable price decline percentages in major U.S. cities for the October 2007 - October 2008 period:
  
  
  • San Francisco: -31.0%
    
    
  • San Diego: -26.7%
    
    
  • Phoenix: -32.7%
    
    
  • Miami: -29.0%
    
    
  • Los Angeles: -27.9%
    
    
  • Las Vegas: -31.7%
    
    
  • Detroit: -20.4%
    
    
• Also from yesterday, the Fed announced that at some point in early January it will start buying up mortgage-backed securities; you know, the ones now infamous for a) setting off the global financial crisis, b) contributing much to the development of the current recession and c) taking down some of America's most influential financial institutions.
  
  
• Again from yesterday, The Conference Board announced that its Consumer Confidence Index (CCI) declined to 38.0 for this month (December), which is a new, all-time low for this metric. Wall Street economists were expecting a reading of about 45.0. Clearly, this is not a good omen for consumer spending, which was the principal driving force behind the last economic expansion in the USA, the expansion which, technically speaking, ended exactly one year ago.
  
  The October, 2008 CCI figure was originally reported at 38.0 as well, but it was later revised up to 38.8. For some perspective: October was the month during which the current, global credit crisis peaked.
  
  For the CCI, the baseline "100" score is associated with 1985 survey data.
  
  
• Crude oil for future delivery finished 2008 at $44.60 per barrel in New York. That's a decline of $100.69 (69.303%) since crude closed at $145.29 per barrel on July 4, 2008.
  
  
• Bear Market Update: since closing with record highs on October 9, 2007, the Dow Jones Industrial Average (DJIA) has now declined by 5,388.14 points (38.04%), while the broader S&P 500 Index has shed 661.90 points (42.29%). The record high for the DJIA is 14,164.53; for the S&P 500 Index it's 1,565.15.
  
  For the year, the DJIA lost 4,488.43 points (33.837%), its worst yearly retreat since 1931. The S&P 500 has given up 565.11 points (38.486%.)
  
  
• One more item from yesterday: the Fed reported the results of its latest, $150 billion money auction, also known as the Term Auction Facility. There were 72 bidders this time around. These 83-day loans will mature on March 26, 2009 and will have an interest rate of 0.2% associated with them.
  
  
• The yield on the benchmark 10-Year Treasury Note ended the year at 2.244%, while the yield on the 13-week Treasury Bill finished 2008 at 0.115%.
  
  

If you've been waiting for the Prime Rate to bottom out, it's very likely your wait is over. The one- and three-month LIBOR rates, on the other hand, will likely shed a few more basis points (over time) before settling near the Fed's current upper limit for the fed funds target rate (0.25%.) Stay tuned to this chart for some perspective on how key benchmark rates are trending.

Of course, the LIBOR rates are constantly changing. Stay tuned to this blog for the latest LIBOR news.

--

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 97% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the January 28^TH, 2009 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 3.25% after the January 28^TH, 2009 FOMC monetary policy meeting adjourns: 97% (very 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.

>  SITEMAP  <

Futures Market 70% Certain Fed Will Cut Short-Term Rates by 75 Basis Points Tomorrow

The fed funds futures market is now 70% certain the Fed will cut the benchmark fed funds target rate (FFTR) by 75 basis points (0.75 percentage point) tomorrow, which basically translates to more likely than unlikely. However, this website's official forecast is the same as it was on December 5^TH: the Fed will cut the FFTR by at least 50 basis points at the December 16^TH Federal Open Market Committee (FOMC) monetary policy meeting.

Yes, it's a very safe bet that the Fed will cut its most important interest rate tomorrow. But will American banks respond by cutting their prime lending rate as usual?

Since the second quarter of 1994, American banks have pegged their prime lending rate to the FFTR. Since that time, a reliable formula for the United States Prime Rate has been:

U.S. Prime Rate = (the FFTR + 3)

On June 27, 2003, the Fed lowered the FFTR from 1.25% to 1.00%. American banks responded by lowering their prime lending rate from 4.25% to 4.00%, but some banks did so grudgingly, complaining that a 4% Prime Rate was too low for them to make a decent profit.

Tomorrow, the Fed will probably lower the FFTR from 1.00% to 0.50%, and if all goes well, American banks will respond by lowering their prime lending rate from 4.00% to 3.50%. But some large banks may resist the rate cut, opting instead to cut their Prime by 0.25 percentage point instead of 0.50, or by not cutting at all and leaving their Prime at 4.00%. This outcome is a very real possibility, as this happened just last week in Canada, the 9^TH largest economy in the world.

It's also important to note that if your bank cuts it's Prime Rate tomorrow, you may not see any change in e.g. the rate you pay on your credit card that's indexed to Prime. Many banks include an interest rate floor in credit card terms to protect themselves from deep rate cuts by the Fed. Bottom line: your credit card account may already be at your card's lowest possible interest rate as a result of the numerous rate cuts the Fed has made since September 2007. Here is an example from an Advanta business credit card agreement:

"...Your Variable Account Rate Index for any billing cycle will be chosen by us from among the Prime Rates published in The Wall Street Journal's "Money Rates" section during the three (3) months prior to the month which contains that cycle's Billing Cycle Closing Date, but will not be less than 5.00%..."

So with this particular business credit card, any U.S. Prime Rate below 5.00% is meaningless.

The good news is that some major banks like U.S. Bank, American Express and the Bank of America don't use interest rate floors with their credit cards (so far.)

Stay tuned to this blog tomorrow. We will conduct our survey, as usual, and we'll update the site as soon as we have confirmation of a rate cut by 23 of America's 30 largest bank holding companies (BHC's.) If some big banks balk, we'll let you know about that too. And please be patient, as confirmation may come very late in the day. Banks will likely be watching each other to see who moves first and by how much.

--

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 cut the benchmark Federal Funds Target Rate by at least 50 basis points (0.50 percentage point) at the December 16^TH, 2008 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 December 16^TH, 2008 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.

>  SITEMAP  <

Futures Market 80% Certain Fed Will Cut Short-Term Rates by 75 Basis Points At or Before The December 16 Fed Meeting

Responding to this morning's dismal employment situation report, the fed funds futures market is now 80% certain the Fed will cut short-term rates by 75 basis points (0.75 percentage point) at or before the next Fed meeting. In other words, the market now believes that an aggressive, 75 basis point cut is more likely than unlikely. This website's official forecast, however, is that the Fed will cut short-term rates by at least 50 basis points at or before the December 16^TH Federal Open Market Committee (FOMC) monetary policy meeting.

In all likelihood, the following recent economic news had at least some influence on the fed funds futures market this week:

• Earlier today, the Labor Department reported that non-farm payrolls declined by 533,000 during November 2008, and the unemployment rate rose from 6.5% to 6.7%. Revisions to the October and September non-farm payroll figures added more gloom to the day's somber employment news. Non-farm job losses for October were revised up from 240,000 to 320,000, while the September figure was also revised higher, from 284,000 to 403,000. For the week that ended on November 22, 2008, the number of Americans on the dole rose by 89,000 to 4.087 million.
  
  
• Yesterday saw a couple of aggressive rate cuts in Europe. The European Central Bank (ECB) cut its benchmark rate by 75 basis points to 2.50%, while Britain's central bank, the Bank of England, cut its key lending rate by 100 basis points to 2.00%.
  
  
• The effective fed funds rate, which is the volume-weighted average rate at which American depository institutions made overnight loans to each other via the Fed, was last reported at 0.16%, and was 0.63% a week ago, according to the Wall Street Journal. The current target for the fed funds rate is 1.00%.
  
  
• On Wednesday, the Labor Department reported that during the third quarter of this year, American, non-farm productivity improved by 1.3%, but this modest improvement was coupled with a 2.8% jump in labor costs.
  
  
• On Thursday, the U.S. Census Bureau reported that Factory Orders declined by 5.1% during October. Wall Street forecasters were expecting a drop of about 2.8%.
  
  
• Earlier today, in its National Delinquency Survey, the Mortgage Bankers Association (MBA) reported that:
  

  
  "...The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 6.99 percent of all loans outstanding at the end of the third quarter of 2008, up 58 basis points from the second quarter of 2008, and up 140 basis points from one year ago on a seasonally adjusted basis..."

  
  
• The yield on the benchmark 10-Year Treasury Note ended the week at 2.657%. The yield on the 91-day Treasury Bill finished the week at 0.01%, and was 0.005% yesterday.
  
  
• The TED spread, which is the difference between the yield on the 91-day Treasury Bill and the 3-month LIBOR yield, ended the week at 2.18 percentage points. For large, international banks, the TED spread gauges the willingness of these banks to lend money to each other. A TED spread that is somewhere between zero and 1.00 percentage point is considered normal.
  
  
• Crude oil for future delivery ended the week at $40.81 per barrel in New York. That's a decline of $65.42 (61.583%) since crude closed at $106.23 per barrel on September 5, 2008.

--

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 cut the benchmark Federal Funds Target Rate by at least 50 basis points (0.50 percentage point) at or before the December 16^TH, 2008 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 or before the December 16^TH, 2008 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.

>  SITEMAP  <

Futures Market Still 100% Certain Fed Will Cut Short-Term Rates by At Least 50 Basis Points At or Before the December 16 Fed Meeting

Currently, the fed funds futures market is 40% certain the Fed will cut short-term rates by 75 basis points (0.75 percentage point) at or before the next Fed meeting. In other words, the market isn't too confident about a 75 basis point cut, believing (currently) that such an aggressive move is more unlikely than likely. The market is, however, 100% confident the Fed will cut rates by at least 50 basis points at or before the December 16^TH Federal Open Market Committee (FOMC) monetary policy meeting.

In all likelihood, the following recent economic news has had at least some influence on the fed funds futures market:

• The Business Cycle Dating Committee of the National Bureau of Economic Research has determined that the U.S. economy peaked back in December of 2007, which means that the United States entered into a recession at the beginning of 2008. Click here to view Friday's report.
  
  
• Earlier today, the Institute for Supply Management (ISM) reported that its Purchasing Manager's Index (PMI) declined for the fifth straight month, from 38.9% for October to 36.2% for November. The last time the PMI was at similar lows was back in the spring of 1982. For the PMI, any figure above 50% suggests that, in general, the American manufacturing sector is expanding, while any figure below 50% suggests contraction for a particular month.
  
  Here's a six month history of the PMI:
  
  

  • June 2008: 50.2%

  • July 2008: 50.0%

  • August 2008: 49.9%

  • September 2008: 43.5%

  • October 2008: 38.9%

  • November 2008: 36.2%

• Also from today, the Federal Reserve reported the results of its latest, $150 billion money auction, also known as the Term Auction Facility. There were 80 bidders. The Fed did not disclose the number of loans awarded via this auction, but the awarded loans will mature on February 26, 2009 and will have an interest rate of 0.42% associated with them.
  
  
• Last Wednesday, the Commerce Department reported that sales of newly built homes fell by 5.3% during October 2008, and were down by 40.1% for the October 2007 - October 2008 period. The median price for a newly built home fell to $218,000, while the average price slid to $272,300. Click here for historical prices and a chart.
  
  
• Two Mondays ago, the National Association of Realtors® reported that sales of existing homes declined by 3.1% during October 2008. The median cost for a preowned home fell to $183,300 (down 11.3% from October 2007), while the average price for a previously occupied home fell to $224,700 (down 11.9% from October 2007.) Click here for historical prices and a chart.
  
  
• Last Wednesday, the Commerce Department reported that consumer spending fell by 1.0% during October 2008, the fifth straight decline for this metric.
  

--

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 cut the benchmark Federal Funds Target Rate by at least 50 basis points (0.50 percentage point) at or before the December 16^TH, 2008 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 or before the December 16^TH, 2008 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.

>  SITEMAP  <

50 Basis Point Cut Fully Priced In for December 16

The fed funds futures market had plenty of economic news and data to digest this week (details below.) Earlier this year, the Fed was concerned about inflation. Now it's disinflation and the prospect of deflation that's got Fed economists worried, as prices fall and credit markets remain petrified.

Traders are still 100% certain that the Fed will cut the benchmark fed funds target rate by at least 25 basis points (0.25 percentage point) at the next Federal Open Market Committee (FOMC) meeting on December 16. Currently, 16% in the market are betting that the Fed will cut rates by 75 basis points next month.

Factors that (likely) influenced the fed funds futures market this week:

• On Wednesday, the Labor Department reported that its Consumer Price Index (CPI) declined by 1.0% during October. This was the biggest retreat for the index since the government started tracking consumer prices back in 1947. Wall Street Economists were expecting a decline of about 0.7% for October.
  
  
• Also on Wednesday, the Commerce Department reported that housing starts declined by 4.5% last month, and by 38.0% between 10/2007 and 10/2008. Housing starts came in at a seasonally adjusted and annualized rate of 791,000 for October, which is the weakest figure for this metric since the government began tracking housing starts back in 1959.
  
  
• Wednesday also saw the release of the minutes from the Fed's October 28-29 FOMC meeting (short-term rates were cut by 50 basis points at that meeting.) Here are a couple of clips:
  
  

  "...Several participants observed that it would be crucial for such policy actions to be unwound appropriately as the financial situation normalized. However, participants also observed that unfolding economic developments could require the FOMC to further lower its target for the federal funds rate in the future and to review the adequacy of its liquidity facilities..."
  
  "...Members anticipated that economic data over the upcoming intermeeting period would show significant weakness in economic activity, and some suggested that additional policy easing could well be appropriate at future meetings. In any event, the Committee agreed that it would take whatever steps were necessary to support the recovery of the economy..."

  
  
• The nation's Leading Economic Indicators declined by 0.8% last month, according to Thursday's reported from The Conference Board. Wall Street Economists were expecting a decline of around 0.6% for October.
  
  
• Thursday also saw the release of the Labor Department's weekly report on new claims for unemployment benefits. There were 542,000 new claims during the week that ended on November 15, which was 37,000 more than Wall Street forecasters were expecting. There are now more than 4 million Americans on the dole, which is the most since December, 1982.
  
  
• Another key report released Thursday was the Philadelphia Fed's diffuse index of current manufacturing conditions in the Fed's Third District, which slid from -37.5 for October to -39.3 for this month. The November figure is the lowest since October of 1990. Wall Street economists were expecting the figure to come in at around -35.0 for November. The Federal Reserve's Third District includes all of Delaware, the southern half of New Jersey and most of Pennsylvania.
  
  
• The Japanese economy, second only to the United States in size, is officially in recession, as are the Hong Kong and Singapore economies.
  
  
• The effective fed funds rate, which is the actual rate (average) at which American commercial banks made overnight loans to each other via the Fed, was last reported at 0.65% today, and was 0.42% a week ago, according to the Wall Street Journal. The current target for the fed funds rate is 1.00%.
  
  
• Mortgage leviathans Freddie Mac and Fannie Mae are suspending foreclosure sales and evictions on occupied, single-family homes from November 26, 2008 through January 9, 2009. Happy holidays.
  
  
• Crude oil for future delivery ended the week at $49.93 per barrel in New York. That's a decline of $54.62 (52.243%) since crude closed at $104.55 per barrel on September 19, 2008.
  
  
• Massive volumes of cash are still moving to the safety of government debt, even to shorter-term Treasuries which are currently offering close to nothing in return. The yield on the benchmark 10-Year Treasury Note fell to 3.167% today, while the yield on the 3-Month Treasury Bill fell to 0.01%.
  
  
• Breaking news that President-elect Obama is likely to nominate current New York Fed boss Timothy Geithner to be the next Treasury Secretary acted as an adrenaline shot for stocks. With less than an hour before the closing bell, stocks rebounded hard on the news. The Dow Jones Industrial Average (DJIA) shot up by more than 500 points to end the day with a gain of 494.13.
  
  
• Despite today's Geithner-inspired rally, the 3 major stock market indexes (1, 2, 3) ended lower on the week and declined to year-to-date lows. Bear Market Update: since closing with record highs on October 9, 2007, the DJIA has now lost 6,118.11 points (43.193%), while the broader S&P 500 Index has declined by 765.12 points (48.885%). The record high for the DJIA is 14,164.53; for the S&P 500 Index it's 1,565.15.

--

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 cut the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at the December 16^TH, 2008 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 16^TH, 2008 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.

>  SITEMAP  <

From The Fed Funds Futures Market: Fed Will Cut Its Benchmark Rate by At Least 0.25 Percentage Point on December 16

The fed funds futures market is still 100% certain that the Fed will cut the benchmark fed funds target rate by at least 25 basis points (0.25 percentage point) at the next Federal Open Market Committee (FOMC) meeting on December 16. An 84% majority in the market is betting that the Fed will cut by 50 basis points next month.

Factors that (likely) influenced the fed funds futures market this week:

• The eurozone is in recession, having contracted for two straight quarters. The eurozone, i.e. the European nations that share the euro currency, is comprised of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, The Netherlands, Portugal, Slovenia, and Spain. It's the first recession for the eurozone since it's creation back in 1999.
  
  
• Earlier today, the Commerce Department reported that U.S. food services and retail trade, also known as retail sales, declined by 2.8% last month. This was the sharpest retreat for retail sales since the government created the economic gauge back in 1992.
  
  
• Across the country, there were 516,000 new claims for unemployment benefits last week, according to Thursday's report from the Labor Department. Wall Street economists were expecting around 482,000 new jobless claims.
  
  
• At a speech before a central banking conference in Frankfurt, Germany, Fed boss Ben Bernanke made the following comments:
  

  
  "...The efforts by central banks around the world to increase the availability of liquidity, along with other steps taken by central banks and governments, have contributed to tentative improvements in credit market functioning. However, the continuing volatility of markets and recent indicators of economic performance confirm that challenges remain. For this reason, policymakers will remain in close contact, monitor developments closely, and stand ready to take additional steps should conditions warrant..."

• The Federal Reserve has approved the proposal made by industrial loan company American Express to become a bank holding company.
  
  
• The effective fed funds rate, which is the actual rate (average) at which American commercial banks made overnight loans to each other via the Fed, was last reported at 0.42%, and was 0.37% a week ago, according to the Wall Street Journal. The current target for the fed funds rate is 1.00%.
  
  
• On Wednesday, the Federal Reserve reported the results of its latest, $150 billion money auction, also known as the Term Auction Facility. Sixteen banks were awarded loans that will mature on January 8, 2009. These banks will pay an interest rate of 0.528% when these loans mature.
  
  
• Crude oil for future delivery ended the week at $57.04 per barrel in New York. That's a decline of $88.25 (60.741%) since crude closed at $145.29 per barrel on July 4, 2008.
  
  
• Mortgage behemoths Fannie Mae and Freddie Mac announced plans to speed up loan modifications for Americans with mortgages that are already in default.
  
  
• Bear Market Update: since closing with record highs on October 9, 2007, the DJIA has now lost 5,667.22 points (40.01%), while the broader S&P 500 Index has declined by 691.86 points (44.204%). The record high for the DJIA is 14,164.53; for the S&P 500 Index it's 1,565.15.
  

--

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 cut the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at the December 16^TH, 2008 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 16^TH, 2008 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.

>  SITEMAP  <

Futures Market Still 100% Certain The Fed Will Cut Short-Term Rates On December 16

The fed funds futures market ended the week 95% certain that the Fed will cut short-term rates by 50 basis points (0.50 percentage point) at the next Federal Open Market Committee (FOMC) meeting on December 16. The futures market isn't accustomed to dealing with a fed funds target rate that's very likely to go lower than the current 1.00%, so the 50 basis point cut that futures contracts are implying right now shouldn't be taken as foolproof. We can, however, be confident that the Fed will elect to cut rates by at least 25 basis points next month.

Factors that (likely) influenced the fed funds futures market this week:

• On Monday, the Institute for Supply Management reported that its Purchasing Manager's Index (PMI) declined for the fourth straight month, from 43.5% for September to 38.9% for October. The last time the PMI was at similar lows was way back in 1982.
  
  For the PMI, any figure above 50% suggests that, in general, the American manufacturing sector is expanding, while any figure below 50% suggests contraction for a particular month.
  
  
• Also on Monday, the Commerce Department reported that construction spending fell by 0.3% during September, and by 6.6% year-over-year.
  
  
• On Tuesday, the U.S. Census Bureau reported that factory orders declined by 2.5% during September. Wall Street economists were expecting a decline of 0.7%.
  
  
• Earlier today, the Labor Department reported that between the beginning of September and the end of October, the already frail U.S. economy shed another 524,000 jobs, and the unemployment rate jumped to 6.5%.
  
  
• On Thursday, the Bank of England (BOE) cut its benchmark interest rate by a staggering 150 basis points (1.50% percentage points) from 4.5% to 3.0%. The BOE, which is England's central bank, hasn't cut its key interest rate that aggressively since 1981.
  
  Also on Thursday, the European Central Bank (ECB) cut its benchmark rate by 50 basis points to 3.25%.
  
  
• Crude oil for future delivery ended the week at $61.04 per barrel in New York, an exact match with the closing price on December 30, 2005. That's a decline of $84.25 (57.987%) since crude closed at $145.29 per barrel on July 4, 2008.
  
  
• The effective fed funds rate, which is the actual rate (average) at which American commercial banks have been making overnight loans to each other via the Fed, was 0.37% today and was 0.24% last Friday, according to the Wall Street Journal. The target fed funds rate is currently 1.00%.
  
  
• Bear Market Update: since closing with record highs on October 9, 2007, the DJIA has now lost 5,220.72 points (36.858%), while the broader S&P 500 Index has declined by 634.16 points (40.518%). The record high for the DJIA is 14,164.53; for the S&P 500 Index it's 1,565.15.

--

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 cut the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at the December 16^TH, 2008 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 16^TH, 2008 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.

>  SITEMAP  <

Futures Market 100% Certain The Fed Will Cut Short-Term Rates Again On December 16

Former Federal Reserve Chairman Alan Greenspan has had to contend with lots of criticism for keeping the benchmark fed funds target rate (FFTR) at 1.00% for too long. The Greenspan Fed cut the FFTR to 1.00% on June 27, 2003, and kept it there until July 1, 2004. Some economists believe all that exceptionally cheap money that was sloshing around in the economy 5 years ago contributed to the financial mess we find ourselves in today.

So now, the big question: is the Bernanke Fed willing to take the FFTR below 1.00% in an effort to stave off a long and painful recession? According to the fed funds futures market, the answer is a firm yes. The futures market is currently 100% confident that the Fed will opt to cut short-term rates again at the next Federal Open Market Committee (FOMC) meeting on December 16, with a majority in the market betting on another 50 basis point (0.50 percentage point) cut.

Here are some factors that (likely) influenced the futures market this week:

• On Tuesday, The Conference Board reported that its Consumer Confidence Index (CCI) fell to 38.0, the lowest level ever for the metric. For the CCI, the baseline "100" score is pegged to 1985 survey data.
  
  Earlier today, the University of Michigan reported that its Consumer Sentiment Index fell from 70.3 for September to 57.6 for October. The baseline "100" score is pegged to 1966 survey data.
  
  
• On Monday, the Commerce Department reported that the median cost for a newly built home fell from $220,400 for August to $218,400 during September. Click here for historical prices and a chart.
  
  
• On Thursday, the Commerce Department reported that the Gross Domestic Product declined by 0.3% during the third quarter of this year.
  
  
• Earlier today, the Commerce Department reported that consumer spending fell by 0.3% during September.
  
  
• Late this afternoon, JP Morgan Chase, the second largest bank holding company in the United States[1], announced that:
  
  

  "...it is expanding its already significant mortgage modification program by undertaking multiple initiatives designed to keep more families in their homes, including extending its modification programs to WaMu and EMC customers..."

  
  Here's another snippet from today's press release:
  

  
  "...The enhanced program is expected to help 400,000 families - with $70 billion in loans - in the next two years. Since early 2007, Chase, WaMu and EMC have helped about 250,000 families - with $40 billion in loans -- avoid foreclosure, primarily by modifying their loans or payments. Both the existing and enhanced programs apply only to owner-occupied properties with mortgages owned by Chase, WaMu or EMC, or with investor approval.
  
  Chase inherited pay-option ARMs when it acquired WaMu's mortgage portfolio last month and EMC's portfolio earlier this year as part of the Bear Stearns acquisition. After reviewing the alternatives that were being offered to customers, Chase decided to add more modification choices. All the offers will eliminate negative amortization and are expected to be more affordable for borrowers in the long term..."
  

--

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 cut the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at the December 16^TH, 2008 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 16^TH, 2008 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.

>  SITEMAP  <

Futures Market 100% Certain Fed Will Cut The Prime Rate on Wednesday

The fed funds futures market is still 100% certain that the Fed will cut short-term rates, including the U.S. Prime Rate, by at least 25 basis points (0.25 percentage point) on Wednesday. Here are some items that probably has some influence on the futures market this week:

• Earlier today, the National Association of Realtors® reported that sales of existing homes ticked up by 5.5% last month, but home prices fell. The median cost for a preowned home fell from $203,100 for August to $191,600 during September. The average price for a used home fell from $245,400 for August to $234,700 during September. Click here for historical prices and a chart.
  
  
• Since closing with record highs on October 9, 2007, the Dow Jones Industrial Average (DJIA) has now lost 5,785.58 points (40.846%), while the broader S&P 500 Index has given up 688.38 points (43.982%). The record high for the DJIA is 14,164.53; for the S&P 500 Index it's 1,565.15.
  
  
• In New York, crude oil for future delivery closed at $64.15 per barrel earlier today. That's a retreat of $42.74 (39.985%) since crude closed at $106.89 per barrel on September 26, 2008.
  
  
• On Wednesday, the Federal Reserve announced that it's going to raise the interest rate paid to banks that have excess balances on deposit at the Fed.
  

--

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 cut the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at the October 29^TH, 2008 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 October 29^TH, 2008 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.

>  SITEMAP  <

Fed Boss Ben Bernanke Thinks Congress Should Consider Another Stimulus Package

The rate cut that is very likely to occur on October 29 will be very welcome for businesses and consumers looking for loans and favorable credit card deals, and for those struggling with debt. The odds that the Fed will opt to cut short-term rates by at least 25 basis points (0.25 percentage point) at the end of the month are still 100%, and the odds of a 50 basis point cut for October 29 cut have been increasing as the next Fed meeting approaches.

Rate cuts are great for boosting economic activity, but another stimulus package could do even more for this anemic U.S. economy, especially since many American banks have responded to the current credit crisis by hoarding the capital in their vaults instead of lending it out.

If you've been hoping for another stimulus package from Congress, then you'll like what Fed Boss Ben Bernanke had to say before the Committee on the Budget of the U.S. House of Representatives earlier today. Here's a clip:

"...I understand that the Congress is evaluating the desirability of a second fiscal package. Any fiscal action inevitably involves tradeoffs, not only among current needs and objectives but also--because commitments of resources today can burden future generations and constrain future policy options--between the present and the future. Such tradeoffs inevitably involve value judgments that can properly be made only by our elected officials. Moreover, with the outlook exceptionally uncertain, the optimal timing, scale, and composition of any fiscal package are unclear. All that being said, with the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate..."

And here's what House Speaker Nancy Pelosi had to say about Ben Bernanke's remarks:

“Chairman Bernanke made it clear that a new economic recovery package is critical to boost our weakening economy. In testimony today before the House Budget Committee, Chairman Bernanke added his voice to the chorus of economists, experts and policymakers who insist that America needs a job-creating recovery package to get our economy back on track and to restore consumer and investor confidence.

“At a time when Americans are struggling with rising costs and weakened retirement security, and a growing number of workers are losing their jobs, I call on President Bush and Congressional Republicans to once again heed Chairman Bernanke’s advice and as they did in January, work with Democrats in Congress to enact a targeted, timely, and fiscally responsible economic recovery and job creation package.”

Some in Congress want the new stimulus checks to be twice as large as the ones issued earlier this year, but considering the cost, it's tough to predict whether a new package would include bigger checks for American consumers. Stay tuned.

Here are some video clips from Ben Bernanke's comments earlier today:







Another piece of positive news today: the TED spread was 3.62875 percentage points on Friday. Today it declined to 2.82875 points, which is a strong indication that the frozen credit market are starting to thaw.

--

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 cut the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at the October 29^TH, 2008 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 October 29^TH, 2008 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.

>  SITEMAP  <

Tame Inflation Gives Fed Room To Cut Short-Term Rates Again At The October 29 Fed Meeting

The week's economic reports as well as a sharp decline in crude oil prices give the Fed plenty of room to cut short-term interest rates again at the October 29 Federal Open Market Committee (FOMC) meeting:

• On Wednesday, the Labor Department reported that the Producer Price Index (PPI) declined by 0.4% during September; on Thursday, it reported that the Consumer Price Index (CPI) for September was flat, i.e. consumer price moved sideways last month.
  
  
• Also on Wednesday, the Commerce Department reported that retail sales declined by 1.2% during September. Wall Street economists were expecting a dip of about 0.6% for last month.
  
  
• On Thursday, the Federal Reserve Bank of Philadelphia reported that its diffuse index of current manufacturing conditions declined to -37.5 this month. Wall Street economists were expecting the index to come in at around -10.0 for October. Also from the Fed on Thursday: industrial production declined by 2.8% during September. Wall Street economists were expecting a retreat of about 0.5%.
  
  
• On Friday, the Commerce Department reported that housing starts declined by 6.3% last month, while building permits declined by 8.3%.
  
  
• In New York, crude oil for future delivery closed at $71.85 per barrel. That's a decline of $35.04 (32.781%) since crude closed at $106.89 per barrel on September 26.
  

--

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 cut the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at the October 29^TH, 2008 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 October 29^TH, 2008 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.

>  SITEMAP  <

Futures Market 100% Certain Fed Will Cut Short-Term Rates Again At The October 29 Fed Meeting

As defined by Wikipedia.org, a stock market crash is:

"...[a] double-digit percentage losses in a stock market index over a period of several days..."

The stock market crashed this past week. For the week, the Dow Jones Industrial Average (DJIA) lost 1,874.19 points (-18.151%) to close at 8,451.19, while the NASDAQ Composite Index gave up 297.88 points (-15.296%) to close at 1,649.51. The S&P 500 Index declined by 200.01 points (-18.195%) to close at 899.22.


Also from Wikipedia.org, a bear market is thus defined:

"...a bear market is not a simple decline, but a substantial drop in the prices of the majority of stocks in a given market over a defined period of time. According to The Vanguard Group, "While there’s no agreed-upon definition of a bear market, one generally accepted measure is a price decline of 20% or more over at least a two-month period..."

And now for the bear market update.

Since closing with record highs on October 9, 2007, the DJIA has now lost 5,713.34 points (40.336%), while the S&P 500 Index has declined by 665.93 points (42.547%). The record high for the DJIA is 14,164.53; for the S&P 500 Index it's 1,565.15. The DJIA was reconfigured recently.

--

The NASDAQ Composite is a unique, tech-heavy index, so we won't include it in the bear market update. Heck: let's do the numbers for NASDAQ anyway, just for fun.

The record high for the NASDAQ Composite Index -- 5,048.62 -- was set on March 10, 2000; it finished the week at 1,649.51. That's a decline of 3,399.11 points (67.328%).


Banks are still extremely wary of lending to other banks, despite the highly coordinated round of rate cuts executed by central banks across the industrialized world on Wednesday. We can find the best evidence of this by observing where the Eurodollar LIBOR rates ended the week. The 3-Month LIBOR yield finished the week 0.31875 percentage point above the U.S. Prime Rate, and an extraordinary 4.63875 percentage points above the yield on the 3-Month Treasury Bill (click here to learn about the TED Spread.) Translation? Banks across the globe see default risk everywhere, and are therefore very reluctant to lend money. The money is there, they're just hoarding it.

The only good news this week? The cost associated with filling your car or truck with gas or diesel is very likely to decline significantly within the next few business days. Crude oil for future delivery ended the week at $77.70 per barrel in New York; that's a decline of $29.19 (27.308%) since the price on light, sweet crude closed at $106.89 per barrel on September 26, 2008.

--

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 Federal Open Market Committee (FOMC) will vote to cut the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at the October 29^TH, 2008 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 October 29^TH, 2008 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.

>  SITEMAP  <

The Federal Reserve Is Changing With The Times

Is it possible that the global financial crisis could produce a painful global depression? Yup, and the Fed knows it. The Federal Reserve is adapting to the current economic environment by making very significant changes to its own rules and regulations:

• Banks can now earn interest on the required and excess cash reserves they have with the Fed. Here's a clip from yesterday's press release:
  
  

  "...The Financial Services Regulatory Relief Act of 2006 originally authorized the Federal Reserve to begin paying interest on balances held by or on behalf of depository institutions beginning October 1, 2011. The recently enacted Emergency Economic Stabilization Act of 2008 accelerated the effective date to October 1, 2008.
  
  Employing the accelerated authority, the Board has approved a rule to amend its Regulation D (Reserve Requirements of Depository Institutions) to direct the Federal Reserve Banks to pay interest on required reserve balances (that is, balances held to satisfy depository institutions’ reserve requirements) and on excess balances (balances held in excess of required reserve balances and clearing balances)..."

  
  
• The commercial paper market -- where unnumbered American companies go to get short-term loans for things like payroll and inventory -- has all but seized up as a result of the credit crisis. In an effort to unfreeze this market, the Fed is now in the business of buying both unsecured and asset-backed commercial paper directly from eligible issuers. Here's a clip from today's press release:
  
  

  "...The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors, themselves often facing liquidity pressures, have become increasingly reluctant to purchase commercial paper, especially at longer-dated maturities. As a result, the volume of outstanding commercial paper has shrunk, interest rates on longer-term commercial paper have increased significantly, and an increasingly high percentage of outstanding paper must now be refinanced each day. A large share of outstanding commercial paper is issued or sponsored by financial intermediaries, and their difficulties placing commercial paper have made it more difficult for those intermediaries to play their vital role in meeting the credit needs of businesses and households...."

In other Fed news: in a speech today, Ben Bernanke provided a pretty strong hint that a cut for short-term interest rates is on its way. Here's a clip from today's speech:

"...Overall, the combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased. At the same time, the outlook for inflation has improved somewhat, though it remains uncertain. In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate..."

Is this a good time for a bear market update? Sure, why not. Since closing with record highs on October 9, 2007, the DJIA has now lost 4,717.42 points (33.304%), while the broader S&P 500 Index has shed 568.92 points (36.349%.), as of today's close.

--

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 Federal Open Market Committee (FOMC) will vote to cut the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at or before the October 29^TH, 2008 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 or before the October 29^TH, 2008 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.

>  SITEMAP  <

Futures Market Still 100% Certain Fed Will Cut The Prime Rate At Or Before The October 29 Fed Meeting

Last Friday, Congress enacted a new law that will allow the federal government to buy the unpriceable and unwanted debt that has caused turmoil in financial markets around the globe. Despite the new law, and despite a recent and significant decline in crude oil prices, foreign and domestic equities declined on Friday and today.

It's not just the difficult mix of problems in global credit markets that are dragging stocks down. Recent and discouraging economic data are also playing a roll:

• Last Friday, the Labor Department reported that the already anemic U.S. economy got weaker by 159,000 jobs last month. Wall Street economists were expecting a decline of about 100,000 jobs for September.
  
  
• Last Wednesday, the Institute for Supply Management reported that its Purchasing Manager's Index (PMI) declined precipitously; from 49.9% for August to 43.5% for September. Any figure above 50% suggests that, in general, the American manufacturing sector is expanding, while any figure below 50% suggests contraction for a particular month.
  
  
• Last Thursday, the U.S. Census Bureau reported that factory orders declined by 4.0% during August. Wall Street economists were expecting a decline of 2.5%.
  

Bear Market Update
Since closing with record highs on October 9, 2007, the DJIA has now declined by 4,209.03 points (29.715%), while the S&P 500 Index has lost 508.26 points (32.474%.)

Crude oil for future delivery is currently trading at $88.74 per barrel; that's a decline of $58.53 (39.74%) since crude hit a record high of $147.27 per barrel on July 11.

Wealth continues to flow to the safety of U.S. Treasuries. The yield on the benchmark 10-Year Treasury note fell to 3.426% earlier today.

--

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 Federal Open Market Committee (FOMC) will vote to cut the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at or before the October 29^TH, 2008 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 or before the October 29^TH, 2008 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.

>  SITEMAP  <

Futures Market 100% Certain Fed Will Cut The Prime Rate At Or Before The October 29 Fed Meeting

Earlier today, the U.S. House of Representatives said "no" to the Bush administration's plan to spend around $700 billion to buy up the bad debt that has brought Wall Street to its knees. The vote was 228-205. Investors reacted to the failed bill by selling, hard. At today's close, the Dow Jones Industrial Average (DJIA) lost 777.68 points (6.98%) to close at 10,365.45. The broader S&P 500 Index shed 106.62 points (8.79%) to close at 1,106.39.

A good time for a bear market update:

• Since closing with record highs on October 9, 2007, the DJIA has now declined by 3,799.08 points (26.821%), while the S&P 500 Index has given up 458.76 points (29.311%.)

In other news, the federal government has brokered a deal in which Citigroup will buy the banking operations of Wachovia for $2.1 billion in stock; Citi will also take on $53 billion of Wachovia's debt. Last week, the Federal Deposit Insurance Corporation (FDIC) brokered a deal in which JPMorgan Chase bought the deposits, assets and certain liabilities of Washington Mutual's (WaMu) banking operations. WaMu had $188 billion in deposits; those customers are now Chase customers. Chase in now the #1 U.S. bank in terms of total deposits.

Shares of Wachovia (WB) fell 81.6% today to close at $8.16 per share, while shares of Washington Mutual are currently trading at $0.1604 per share.

--

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 Federal Open Market Committee (FOMC) will vote to cut the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at or before the October 29^TH, 2008 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 or before the October 29^TH, 2008 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.

>  SITEMAP  <

Futures Market 86% Certain Fed Will Cut The Prime Rate At The October 29 Fed Meeting

Yesterday, the National Association of Realtors® released its report on sales of previously occupied homes for August. Nationwide, existing homes sales dropped by 2.2% last month, and were down 10.7% for the August 2007 - August 2008 period. The median price on a used home dropped to $203,100, while the average price dipped to $245,400. Click here for historical prices and a chart.

Earlier today, the Commerce Department reported that sales of newly built homes fell by 11.5% last month, and were down by 34.5% for the August 2007 - August 2008 period. The median price for a newly built home fell to $221,900, while the average price slid to $263,900. Click here for historical prices and a chart.

In other economic news:

• New claims for unemployment benefits came in at 493,000 for last week, significantly higher than the 445,000 Wall Street economists were expecting.
  
  
• New orders for durable goods -- items built to last at least 3 years -- declined by 4.5% for August. Economists were expecting a decline of about 1.6%.

With regard to the Bush Administration's plan to spend an estimated $700 billion to buy up distressed mortgage-backed securities and other toxic loans, President Bush had this to say:

"...Without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold..."

In testimony before Congress yesterday, Federal Reserve boss Ben Bernanke made these comments:

"...Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress. Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy. In this regard, the Federal Reserve supports the Treasury's proposal to buy illiquid assets from financial institutions. Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions. More generally, removing these assets from institutions’ balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth..."

--

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 86% (as implied by current pricing on contracts) that the Federal Open Market Committee (FOMC) will vote to cut the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at the October 29^TH, 2008 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 October 29^TH, 2008 FOMC monetary policy meeting: 86% (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.

>  SITEMAP  <

Futures Market 98% Certain The Fed Will Cut Short-Term Rates Today

The futures market is pushing hard for a rate cut today, but most Wall Street economists believe that the Fed will leave short-term rates unchanged when the Federal Open Market Committee (FOMC) adjourns its monetary policy meeting later this afternoon. So, even though the fed funds futures market is nearly 100% certain that the Fed will cut rates at 2:15 pm EST, in reality, the odds are about 50/50.
The reason for the uncertainty: the fate of insurance giant American International Group (AIG) is still unknown. Wall Street has no idea if AIG will be forced to declare bankruptcy or become the next major American financial institution to be rescued by a Fed-brokered bailout. Though nobody is willing to lend money to AIG, a rescue is the more likely scenario, since the company is solvent.

--

As of Monday evening, the investors who trade in fed funds futures at the Chicago Board of Trade had odds at 98% (as implied by current pricing on contracts) that the FOMC will vote to cut the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at today's monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds the Prime Rate will be cut by at least 25 basis points at today's
  FOMC monetary policy meeting: 98% (very 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.

>  SITEMAP  <

Fed Futures Turnaround: Odds On A Rate Cut for Tomorrow Currently At 66%

Lehman Brothers, founded in 1850 and, until recently, America's fourth largest investment bank, filed a petition for Chapter 11 Bankruptcy in a New York court today. A government bailout was considered, but in the end, top officials in the federal government decided that if Lehman could not find a buyer, then Lehman should be left to die. The U.S. government bailed out Bear Stearns indirectly, and rescued mortgage giants Fannie Mae and Freddie Mac. Now the purse strings have been cinched. Shares of Lehman closed at $0.21 per share today. On September 17, 2007, the stock was trading at $57.59 per share.

Merrill Lynch fared better: yesterday, the Bank of America announced that it will purchase Merrill in a $50 billion, all-stock arrangement. Not a fire sale price, but pretty close.

Who would have thought that subprime lending would cause such mayhem and destruction on Wall Street, and change the American financial landscape forever.

The Bear Market Is Back

Investors reacted to the news of Lehman's downfall with extreme bearishness. The Dow Jones Industrial Average (DJIA) lost 504.48 points (4.417%) today, while the broader S&P 500 Index lost 59 points (4.714%). Shares of DJIA component American International Group (AIG) lost 7.38 points (60.791%) to close at $4.76 per share today. AIG shares were trading at $63.45 a year ago. AIG is strapped for cash. The insurance giant may go the way of Lehman Brothers if the company isn't able to get access to about $70 billion by Wednesday.

Since closing with record highs on October 9, 2007, the DJIA has now dropped 3,247.02 points (22.924%), while the S&P 500 has shed 372.45 points (23.796%.)


Perhaps the only piece of good news today: crude oil for future delivery is currently trading at $92.55 per barrel in New York. That's a decline of $54.72 (37.156%) since crude hit a record high of $147.27 per barrel on July 11 of this year. Cheaper crude translates to an improved inflation outlook, which in turn makes it easier for the Federal Open Market Committee (FOMC) to cut rates tomorrow, if the group decides a cut is necessary. If the stock market slide continues tomorrow morning, then the odds on a rate cut for tomorrow afternoon will increase dramatically. Stay tuned!

--

As of Monday evening, the investors who trade in fed funds futures at the Chicago Board of Trade had odds at 66% (as implied by current pricing on contracts) that the FOMC will vote to cut the benchmark Federal Funds Target Rate by 25 basis points (0.25 percentage point) at the September 16^TH, 2008 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds the Prime Rate will be cut by 25 basis points at tomorrow's
  FOMC monetary policy meeting: 66% (more likely than unlikely)
  
  
• 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.

>  SITEMAP  <

Futures Market 92% Certain Prime Rate Will Remain at 5.00% After September 16 Fed Meeting

The Federal National Mortgage Association (FNMA), a.k.a Fannie Mae, and the Federal Home Loan Mortgage Corporation (FHLMC), a.k.a Freddie Mac, are now under the conservatorship of the Federal Housing Finance Agency (FHFA). In other words, the U.S. government is now running both mortgage behemoths. The CEO's of both firms are being replaced with Wall Street veterans. Former Merrill Lynch vice chairman Herbert M. Allison will take the helm at Fannie Mae, while former US Bancorp chairman David M. Moffett will be the new boss at Freddie Mac.

How big are Fannie and Freddie? The two companies are associated with about half of America's $12 trillion mortgage market.

Nobody knows how much the bailout will cost American taxpayers, but estimates are in the tens of billions of dollars. Not a bad investment considering how important the two companies are to the well being of global financial markets. For some perspective, compare this estimate to the $12 billion per month price tag attached to the current Iraq war.

It's now abundantly clear that the government won't let the mortgage giants fail, so the mortgage-backed securities issued by Freddie and Fannie are now more attractive to investors on Wall Street. This will translate to cheaper fixed-rate mortgages for American home buyers. News of the government takeover was announced yesterday and, as a direct result, 30-year, fixed-rate mortgages got cheaper today.

The holders of Fannie and Freddie stock have not fared well since the two companies started to deteriorate:

• On September 7, 2007, shares of Fannie Mae closed at $60.25 per share. Today, the stock lost 6.31 points (89.63%) to close at $0.73 per share.
  
  
• On September 7, 2007, shares of Freddie Mac closed at $56.93 per share. Today, the stock lost 4.22 points (82.75%) to close at $0.88 per share.

Financial markets across the globe will cheer the takeover. Without a doubt, the Chinese government will breath a sigh of relief: 10% of China's GDP is invested in Fannie and Freddie.

--

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 Federal Open Market Committee (FOMC) will vote to leave the benchmark Federal Funds Target Rate at the current 2.0% at the September 16^TH, 2008 monetary policy meeting. 4% in the market are betting on a 25 basis point (0.25 percentage point) cut next week, while the remaining 4% are betting that the Fed will opt for a 25 basis point increase.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will remain at the current 5.0% after the September 16^TH, 2008 FOMC monetary policy meeting: 92% (likely)
  
  
• Current odds that the Prime Rate will remain at the current 5.0% after the October 29^TH, 2008 FOMC monetary policy meeting: 87% (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.

>  SITEMAP  <

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

The fed-funds futures market had a number of attention-grabbing bits of economic news to digest this week:

• From the Commerce Department: construction spending fell by 0.6% during July, while new orders for manufactured goods advanced by 1.3% during the same month.
  
  
• On Tuesday, the Institute for Supply Management reported that its Purchasing Manager's Index (PMI) declined from 50.0 for July to 49.9% for August. This 0.1% difference may seem insignificant, but any figure above 50% suggests that, in general, the American manufacturing sector is expanding, while any figure below 50% suggests contraction. So, between the beginning of July and the end of August, American manufacturing went from stagnant to shrinking.
  
  
• During the second quarter of 2008, non-farm productivity increased by 4.3%, while unit labor costs declined by 0.5%, according to a report released by the Labor Department on Thursday. Without a doubt, this is good news for American corporations and business owners: that guy or gal in the corner office is always looking for ways to run a more efficient shop and thus improve the company's bottom line. This particular piece of economic news isn't positive from a consumer spending perspective, however, since it implies that American workers were more productive while at the same time earned less money.
  
  
• Earlier today, the Labor Department reported that the American economy shed another 84,000 jobs last month, and the unemployment rate jumped from 5.7% for July to 6.1% for August. The last time the U.S. economy actually added jobs was back in December of 2007.
  
  
• A few hours ago, crude oil for future delivery ended the week at $106.23 per barrel. Crude hit a record high of $147.27 on July 11; that's a decline of $41.04 (27.867%.)
  
  
• Wall Street money continued to move to the safety of U.S. Treasuries this week. The yield on the 10-Year Treasury Note fell from 3.813% on August 29 to 3.66% today.
  

--

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 16^TH, 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 16^TH, 2008 FOMC monetary policy meeting: 88% (likely)
  
  
• Current odds that the Prime Rate will remain at the current 5.0% after the October 29^TH, 2008 FOMC monetary policy meeting: 85% (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.

>  SITEMAP  <

Futures Market 92% Certain Prime Rate Will Remain at 5.00% After September 16 Fed Meeting

Yesterday's positive news that The Conference Board's Consumer Confidence Index (CCI) rose from 51.9 for July to 56.9 for this month was offset by new evidence that the North American banking sector still has some way to go before it's out of the woods. Here's a clip from a press release issued by the Federal Deposit Insurance Corporation (FDIC) yesterday:

"Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported net income of $5.0 billion in the second quarter of 2008, a decline of $31.8 billion (86.5 percent) from the $36.8 billion that the industry earned in the second quarter of 2007. With the exception of the fourth quarter of last year, the latest earnings were the lowest for the industry since the fourth quarter of 1991.

'By any yardstick, it was another rough quarter for bank earnings, but the results were not unexpected as the industry coped with financial market disruptions, the housing slump, worsening economic conditions and the overall downturn in the credit cycle,' said FDIC Chairman Sheila C. Bair.

The FDIC's 'problem list' grew to 117 institutions from 90 at the end of the first quarter. That is largest number on the list since the middle of 2003. Total assets of problem institutions increased from $26 billion to $78 billion, with $32 billion coming from IndyMac Bank, F.S.B., Pasadena, CA, which failed in July. 'More banks will come on the list as credit problems worsen,' Chairman Bair added. 'Assets of problem institutions also will continue to rise...'"

The FDIC believes that 117 American financial institutions are looking pale in the face. More bank failures on the way? Almost certainly.

--

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 September 16^TH, 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 16^TH, 2008 FOMC monetary policy meeting: 92% (likely)
  
  
• Current odds that the Prime Rate will remain at the current 5.0% after the October 29^TH, 2008 FOMC monetary policy meeting: 83% (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.

>  SITEMAP  <

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 16^TH, 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 16^TH.


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 16^TH, 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 16^TH, 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.

>  SITEMAP  <

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 16^TH, 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 16^TH.


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 16^TH, 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 16^TH, 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.

>  SITEMAP  <

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 5^TH. 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 5^TH, 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 5^TH.


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 5^TH, 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 5^TH, 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.

>  SITEMAP  <

Futures Market 90% Certain That The Fed Will Leave Short-Term Rates Alone on August 5

If you want to help this tepid U.S. economy, review your wish list and buy something. This is no commercial for the banking industry. Simple fact is, short-term rates, like the U.S. Prime Rate, won't go any lower this year, and may even go up within the next six months as the Fed may need to take action to keep inflation in check.

The futures market currently has odds at 90% 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 5^TH, 2008. 10% in the market are betting that the Fed will raise short-term rates by 25 basis points (0.25 percentage point) on August 5^TH.

Recent and notable developments in the economy:

• The current bear market may spook consumers with stock portfolios and retirement plans to worry about. Since closing with record highs on October 9, 2007, the Dow Jones Industrial Average (DJIA) has now lost 3,109.34 points (21.952%), while the broader S&P 500 Index has given up 336.85 points (21.522%.)
  
  
• Crude oil for future delivery is currently trading at $145.18 per barrel in New York. On July 13, 2007, the price on crude finished the week at $73.93 per barrel. That's an increase of $71.25 (96.375%.)
  
  
• On July 13, 2007, the euro bought 1.3783 U.S. dollars in New York. Right now, the euro buys 1.5896 U.S. dollars.
  
  
• On July 13, 2007, the yield on the 10-Year Treasury Note finished the week @ 5.107%. Today the yield closed at 3.88%.
  
  
• On the positive side, the Institute for Supply Management reported that its Purchasing Manager's Index (PMI) advanced from 49.6 for May to 50.2% for June. Any figure above 50% suggests that, generally, the American manufacturing sector is expanding, while any figure below 50% suggests contraction. The PMI hasn't been above 50% since January 2008.
  
  
• On June 24, 2008, The Conference Board reported that its Consumer Confidence Index (CCI) for June 2008 fell to 50.4. The CCI has been declining since December of last year:
  
  

  December 2007: 90.6
  January 2008: 87.3
  February 2008: 76.4
  March 2008: 65.9
  April 2008: 62.8
  May 2008: 58.1
  June 2008: 50.4 (preliminary)

  The CCI offers insight about how consumers are feeling about the U.S. economy and their own financial circumstances. The baseline "100" score is associated with 1985 survey data.

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 90% (as implied by current pricing on contracts) that the FOMC will elect to leave the benchmark Federal Funds Target Rate at the current 2.0% at the August 5^TH, 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 5^TH, 2008 FOMC monetary policy meeting: 90% (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.

>  SITEMAP  <

Futures Market 92% Certain That The Fed Is Done with Cutting Rates for Now

If you've been waiting for just the right time to borrow money, then there is some great news for you today: it's likely that the Fed is done with the current cycle of rate cuts. This means that short-term interest rates, including the U.S. Prime Rate (currently at 5.0%), are not likely to go any lower this year. This is a great time to lock in a favorable rate on a non-mortgage loan, especially if the loan in question has a fixed interest rate (FYI: if it's a home loan you're after, mortgage rates are still looking good).

The futures market currently 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 June 25^TH, 2008. 8% in the market are betting that the Fed will cut short-term rates by 25 basis points (0.25 percentage point) on June 25^TH.

Recent news that has influenced the futures market this week:

• Speaking in New Orleans on May 20, Fed Vice Chairman Donald Kohn had this to say (clip):
  
  

  "...With the information now in hand, it is my judgment that monetary policy appears to be appropriately calibrated for now to promote both rising employment and moderating inflation over the medium term. But a large measure of uncertainty surrounds that judgment and as the economy evolves, so will the appropriate stance of policy..."
  
  

• And here's a clip from the recently released minutes from the April 29-30 FOMC monetary policy meeting:
  
  

  "...In the Committee's discussion of monetary policy for the intermeeeting period, most members judged that policy should be eased by 25 basis points at this meeting. Although prospects for economic activity had not deteriorated significantly since the March meeting, the outlook for growth and employment remained weak and slack in resource utilization was likely to increase. An additional easing in policy would help to foster moderate growth over time without impeding a moderation in inflation. Moreover, although the likelihood that economic activity would be severely disrupted by a sharp deterioration in financial markets had apparently receded, most members thought that the risks to economic growth were still skewed to the downside. A reduction in interest rates would help to mitigate those risks. However, most members viewed the decision to reduce interest rates at this meeting as a close call..."

Of course, the incessant rise of crude oil prices isn't making the Fed's job any easier. Crude oil for future delivery is currently trading at a staggering $130.55 per barrel in New York, which is basically tantamount to throwing a big, wet towel over the U.S. economy, while at the same time stoking the flames of inflation. Yuck.


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 June 25^TH, 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 June 25^TH, 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.

>  SITEMAP  <

Fed Likely to Cut Short-Term Rates by 25 Basis Points On Wednesday

The next Federal Open Market Committee (FOMC) monetary policy meeting is just 2 days away, and right now the fed funds futures market is pretty confident that the Fed will cut short-term rates by 25 basis points (0.25 percentage point) on Wednesday.

The futures market currently has odds at 80% that the Fed will cut the benchmark Fed Funds Target Rate by 25 basis points two days from now. 20% in the market are betting that the Fed will leave short-term rates at their current level when the next FOMC meeting adjourns on Wednesday.


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 80% (as implied by 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 April 30^TH, 2008 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 April 30^TH FOMC monetary policy meeting: 80% (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.

>  SITEMAP  <

Fed Will Cut Short-Term Rates On April 30; Odds On 50 Basis Point Cut Rising

The fed funds futures market currently has odds at 60% that the Fed will cut the benchmark Fed Funds Target Rate by 25 basis points (0.25 percentage point) at the April 30^TH FOMC monetary policy meeting. 40% are betting that the Fed will cut short-term rates by 50 basis points at the end of the month.

Recent economic news influencing the futures market:

• The U.S. economy got weaker by 80,000 jobs last month, according to the Labor Department's most recent jobs report, while the unemployment rate rose from 4.8% to 5.1%. The total number of nonfarm payrolls lost since the beginning of 2008 now stands at 232,000.
  
  
• Last Wednesday, the U.S. Census Bureau reported that factory orders declined by 1.3% during February 2008. Wall Street economists were expecting a decline of about 0.6%.
  
  
• Last Tuesday, the Institute for Supply Management reported that the Purchasing Manager's Index (PMI) advanced from 48.3 for February to 48.6% for March. Though the recent figure indicates some improvement, any figure below 50% suggests that, generally, the American manufacturing sector is contracting.
  
  
• Also last Tuesday, the U.S. Census Bureau reported that construction spending fell by 0.3% during February 2008. Wall Street economists were expecting a decline of about 1.1%. When comparing 02/2007 to 02/2008, construction spending was down by 3.5%.
  
  
• In prepared remarks before the U.S. Senate Committee on Banking, Housing, and Urban Affairs last Thursday, Fed boss Ben Bernanke made the following comments:
  
  

  "...Although the situation has recently improved somewhat, financial markets remain under considerable stress. Pressures in short-term bank funding markets, which had abated somewhat beginning late last year, have increased once again. Many lenders have been reluctant to provide credit to counterparties, especially leveraged investors, and increased the amount of collateral they required to back short-term security financing agreements. To meet those demands, investors have reduced their leverage and liquidated holdings of securities, putting further downward pressure on security prices. Credit availability has also been restricted because some large financial institutions, including some commercial and investment banks and the government-sponsored enterprises (GSEs), have reported substantial losses and writedowns, reducing their capital available to support increased lending. Some key securitization markets, including those for nonconforming mortgages, continue to function poorly if at all.
  
  These developments in financial markets--which themselves reflect, in part, greater concerns about housing and the economic outlook more generally--have weighed on real economic activity. Notably, in the housing market, sales of both new and existing homes have generally continued weak, partly as a result of the reduced availability of mortgage credit, and home prices have continued to fall. Private payroll employment fell substantially in February, after two months of smaller job losses, with job cuts in construction and closely related industries accounting for a significant share of the decline. But the demand for labor has also moderated recently in other industries. Overall, the near-term economic outlook has weakened relative to the projections released by the Federal Open Market Committee (FOMC) at the end of January. Inflation has also been a source of concern. We expect inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully..."

  
  
• And here's a clip from Ben Bernanke's testimony before the Joint Economic Committee of the U.S. Congress last Wednesday:
  
  

  "...Overall, the near-term economic outlook has weakened relative to the projections released by the Federal Open Market Committee (FOMC) at the end of January. It now appears likely that real gross domestic product (GDP) will not grow much, if at all, over the first half of 2008 and could even contract slightly. We expect economic activity to strengthen in the second half of the year, in part as the result of stimulative monetary and fiscal policies; and growth is expected to proceed at or a little above its sustainable pace in 2009, bolstered by a stabilization of housing activity, albeit at low levels, and gradually improving financial conditions. However, in light of the recent turbulence in financial markets, the uncertainty attending this forecast is quite high and the risks remain to the downside.
  
  Inflation has also been a source of concern. The price index for personal consumption expenditures rose 3.4 percent over the twelve months ending in February, up from 2.3 percent over the preceding twelve-month period. To a large extent, this pickup in inflation has been the result of sharp increases in the prices of crude oil, agricultural products, and other globally traded commodities. Additionally, the decline in the foreign exchange value of the dollar has boosted some non-commodity import prices and thus contributed to inflation. However, the so-called core rate of inflation--that is, inflation excluding food and energy prices--has edged down recently after firming somewhat late last year..."

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 100% (as implied by 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 April 30^TH, 2008 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 April 30^TH 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.

>  SITEMAP  <

Futures Market Certain The Fed Will Cut Rates Again on April 30

The Fed has cut short-term rates aggressively -- by 300 basis points (3.00 percentage points) since mid-September of last year -- in an attempt to inject vitality into the sluggish economy and help ease turmoil in credit markets. The Fed doesn't want to cut rates by too much, which could easily create another wave of asset bubbles in the future. According to current odds from the fed funds futures market, however, the Fed will cut again on April 30.

Recent economic news influencing the futures market:

• Last Thursday, The Conference Board reported that the nation's leading economic indicators fell by 0.3% during February 2008, which is what Wall Street economists were expecting.
  
  
• Also last Thursday, the Federal Reserve Bank of Philadelphia reported that its diffusion index of current manufacturing activity in the Philadelphia area (the Fed's Third District) came in at -17.4 for this month. Any figure below zero indicates that manufacturing in the Fed's Philadelphia region is contracting, while a positive figure implies expansion. The Fed's Third District includes all of Delaware, parts of southern New Jersey, and a large section of eastern Pennsylvania.
  
  
• Yesterday, the National Association of Realtors® released its report on sales of previously owned homes for February. Though sales of previously occupied homes improved during February, the median and average price for a used home declined for the third straight month. According to preliminary estimates, the median price on a used home in the United States was $195,900, while the average price was $241,900.
  
  
• Earlier today, The Conference Board reported that the Consumer Confidence Index (CCI) fell to 64.5 this month. Wall Street economists were expecting ~73.0. The CCI has been declining from month to month since last summer (the July 2007 figure was 111.9.) For the CCI, the baseline score of 100 is associated with 1985 survey results.

Right now, the fed funds futures market has odds at 66% that the Fed will cut the benchmark Fed Funds Target Rate by 25 basis points (0.25 percentage point) at the April 30^TH FOMC monetary policy meeting. 34% are betting that the Fed will cut short-term rates by 50 basis points at the end of next month.


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 100% (as implied by 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 April 30^TH, 2008 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 April 30^TH 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.

>  SITEMAP  <

Fed Will Cut Short-Term Rates by At Least 100 Basis Points Tomorrow

Shares of the investment bank Bear Stearns fell 87% today to close at $4.81. The stock was at $145.49 on March 19, 2007. Though a rescue plan is in place for Bear (the company will likely be sold to JPMorgan Chase at a fire sale price), the Fed is still worried about the health of the financial sector. Confidence is evaporating fast, and the everyone is counting on the Fed to use its powers to help stabilize the system.

Credit markets need a serious boost, and the Fed will deliver. Yesterday, the FOMC lowered the discount rate by 25 basis points to 3.25%. In all likelihood, the FOMC will lower the Fed Funds Target Rate by at least 100 basis points tomorrow afternoon.

Right now, the fed funds futures market has odds at 84% that the Fed will cut the benchmark Fed Funds Target Rate by 100 basis points (1.00 percentage point) at the March 18^TH FOMC monetary policy meeting. 16% are betting that the Fed will cut short-term rates by 125 basis points tomorrow.


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 100% (as implied by current pricing on contracts) that the FOMC will vote to lower the benchmark Federal Funds Target Rate by at least 100 basis points (1.00 percentage point) at the March 18^TH, 2008 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will be cut by at least 100 basis points at the March 18^TH 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.

>  SITEMAP  <

Short-Term Rates Very Likely to be Cut By At Least 75 Basis Points On Tuesday

With all the somber economic news in the business headlines lately, one thing is clear: the Fed wants to cut rates aggressively when the Federal Open Market Committee (FOMC) meets on March 18 (Tuesday.)

However, cutting short-term rates aggressively with the concurrent problem of rising prices could hurt the FOMC's credibility. For sure, no one wants a return of 1970's-style inflation.

How bad is inflation right now? Well, to get an idea: crude oil for future delivery finished the week at a staggering $110.21 per barrel, while New York Spot Gold ended the week at $1,002.50 per ounce.

The fed funds futures market is now indicating that the Fed may cut short-term rates by as much as 100 basis points (1.00 percentage point) on March 18. That's very, very aggressive. Is the Fed really going to execute such a large rate cut when so many prominent economists are worried about inflation? Yes, it is.

The Fed is very likely to cut by at least 75 basis points on Tuesday. The twofold justification for such a large cut came on Friday:

• For some time, the FOMC has stated that it "expects inflation to moderate in coming quarters." The February 2008 Consumer Price Index (CPI) figures bear out the group's assertion. According to the Labor Department report, both the CPI and the core CPI advanced by less than 0.1% on a seasonally-adjusted basis last month. Bottom line: the CPI figures for February are, in essence, the Fed's license to cut aggressively on Tuesday.
  
  
• The U.S. #5 investment bank Bear Stearns is strapped for cash. Bear Stearns stock price fell 47.37% on Friday to close @ $30.00 per share. A year ago, the stock was trading at $143.68. JPMorgan Chase bank borrowed money directly from the Federal Reserve via the Fed's discount window, and then lent that same cash to Bear. The Fed is assuming all the risk for this loan. Bear Stearns may be sold in the near future.
  
  

Is the U.S. economy already in recession? We'll have to wait until April 30 for the answer. That's when the Commerce Department is set to release the "advance" Gross Domestic Product (GDP) report for Q1, 2008.


Yesterday, the fed funds futures market had odds at 60% that the Fed will cut the benchmark Fed Funds Target Rate by 100 basis points (1.00 percentage point) at the March 18^TH FOMC monetary policy meeting. 40% are betting that the Fed will cut short-term rates by 75 basis points on March 18^TH.


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 100% (as implied by current pricing on contracts) that the FOMC will vote to lower the benchmark Federal Funds Target Rate by at least 75 basis points (0.75 percentage point) at the March 18^TH, 2008 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will be cut by at least 75 basis points at the March 18^TH 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.

>  SITEMAP  <

Odds On A 75 Basis Point Rate Cut for March 18 Hit 96% On Weak Jobs Report

Thanks to a surprisingly anemic jobs report, and other economic news suggesting that a recession may be in the offing, the fed funds futures market is now 100% certain that the Fed will cut short-term rates by at least 75 basis points (0.75 percentage point) this month.

• On Friday, the Labor Department reported that nonfarm payrolls declined by 63,000 during February 2008. Wall Street economists were expecting payrolls to advance by about 25,000. What's worse, the nonfarm payrolls figure for January was revised down from a loss of 17,000 jobs to a loss of 22,000. The latest employment figures have led many economists to believe that the U.S. economy is already in a recession.
  
  
• The stock market recoiled in response to the February jobs report. Since closing with record highs on October 9, 2007, the Dow Jones Industrial Average (DJIA) is now 2,270.84 points (16.032%) lower, while the S&P 500 Index has shed 271.78 points (17.364%.)
  
  
• The prospect of an imminent and aggressive rate cut from the Fed has precipitated a further weakening of the dollar and has helped to send crude oil prices to record highs. By Friday evening, one euro could be traded for $1.5356 in New York, while one dollar bought 0.6512 euro. The price on crude oil for future delivery closed at $105.15 per barrel.
  
  
• On Monday, the Institute for Supply Management reported that the Purchasing Manager's Index (PMI) fell from 50.7% for January to 48.3% for February. Any figure above 50% suggests that, generally, U.S. manufacturing is expanding, while any figure below 50% suggests that the American manufacturing sector is contracting.
  
  
• On Friday, the Federal Reserve announced that it will expand its Term Auction Facility (TAF) in a continuing effort to keep financial markets from seizing up.
  

As of right now, the fed funds futures market has odds at 96% that the Fed will cut the benchmark Fed Funds Target Rate by 75 basis points (0.75 percentage point) at or before the March 18^TH Federal Open Market Committee (FOMC) monetary policy meeting. A 4% minority in the futures market are betting that the Fed will cut short-term rates by 100 basis points at some point between now and March 18^TH.


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 100% (as implied by current pricing on contracts) that the FOMC will vote to lower the benchmark Federal Funds Target Rate by at least 75 basis points (0.75 percentage point) at or before the March 18^TH, 2008 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will be cut by at least 75 basis points at or before the March 18^TH 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.

>  SITEMAP  <

Futures Market Certain of 50 Basis Point Cut Despite Rising Prices

Two days ago, the Labor Department reported that wholesale prices rose by a very ugly 1.0% during January 2008. Consumer prices rose by 0.4% during the same month. Crude oil for future delivery is currently trading at $102.24 per barrel (no, that's not a typo), while New York Spot Gold finished the day at $969.50 per ounce. With inflation stealing current economic news headlines, how is it that the fed funds futures market is once again 100% certain that the Fed will cut short-term rates by at least 50 basis points (0.50 percentage point) by March 18?

Here's what Fed boss Ben Bernanke had to say about it in testimony before Congress yesterday:

"...The economic situation has become distinctly less favorable since the time of our July report. Strains in financial markets, which first became evident late last summer, have persisted; and pressures on bank capital and the continued poor functioning of markets for securitized credit have led to tighter credit conditions for many households and businesses. The growth of real gross domestic product (GDP) held up well through the third quarter despite the financial turmoil, but it has since slowed sharply. Labor market conditions have similarly softened, as job creation has slowed and the unemployment rate--at 4.9 percent in January--has moved up somewhat.

Many of the challenges now facing our economy stem from the continuing contraction of the U.S. housing market. In 2006, after a multiyear boom in residential construction and house prices, the housing market reversed course. Housing starts and sales of new homes are now less than half of their respective peaks, and house prices have flattened or declined in most areas. Changes in the availability of mortgage credit amplified the swings in the housing market. During the housing sector's expansion phase, increasingly lax lending standards, particularly in the subprime market, raised the effective demand for housing, pushing up prices and stimulating construction activity. As the housing market began to turn down, however, the slump in subprime mortgage originations, together with a more general tightening of credit conditions, has served to increase the severity of the downturn. Weaker house prices in turn have contributed to the deterioration in the performance of mortgage-related securities and reduced the availability of mortgage credit.

The housing market is expected to continue to weigh on economic activity in coming quarters. Homebuilders, still faced with abnormally high inventories of unsold homes, are likely to cut the pace of their building activity further, which will subtract from overall growth and reduce employment in residential construction and closely related industries...

...The rate of inflation that is actually realized will of course depend on a variety of factors. Inflation could be lower than we anticipate if slower-than-expected global growth moderates the pressure on the prices of energy and other commodities or if rates of domestic resource utilization fall more than we currently expect. Upside risks to the inflation projection are also present, however, including the possibilities that energy and food prices do not flatten out or that the pass-through to core prices from higher commodity prices and from the weaker dollar may be greater than we anticipate. Indeed, the further increases in the prices of energy and other commodities in recent weeks, together with the latest data on consumer prices, suggest slightly greater upside risks to the projections of both overall and core inflation than we saw last month. Should high rates of overall inflation persist, the possibility also exists that inflation expectations could become less well anchored. Any tendency of inflation expectations to become unmoored or for the Fed's inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and could reduce the flexibility of the FOMC to counter shortfalls in growth in the future. Accordingly, in the months ahead, the Federal Reserve will continue to monitor closely inflation and inflation expectations..."

Other economic news supporting predictions that the Fed will cut aggressively next month:

• Housing: On Monday, the National Association of Realtors® reported that sales of previously occupied homes fell by 0.4% last month. Between 01/2007 and 01/2008, sales of used homes were down 23.4%. And according to preliminary estimates, the median cost of a used home fell to $201,100, while the average price sank to $247,700.
  
  
• Housing: On Wednesday, the Commerce Department reported that sales of newly built (virgin) homes fell by 2.8% last month. Between 01/2007 and 01/2008, sales of new homes were down 33.9%. According to preliminary estimates, the median price of a brand new home declined to $216,000.
  
  
• Consumer Spending: On Tuesday, The Conference Board reported that the Consumer Confidence Index (CCI) fell to 75.0 for this month (February.) Wall Street economists were expecting the figure to come in at around 81.3. The CCI has been declining since the summer of 2007 (the 07/07 figure was 111.9.) For the CCI, the baseline score of 100 is associated with 1985 survey results.
  
  
• Manufacturing: Yesterday, the Commerce Department reported the orders for durable goods fell by 5.3% last month. Wall Street was expecting a decline of about 3.5%. Durable goods = items built to last 3 years or more, like airplanes, cars and cooking ranges.
  

As of right now, the fed funds futures market has odds at 62% that the Fed will cut the benchmark Fed Funds Target Rate by 50 basis points (0.50 percentage point) at or before the March 18^TH Federal Open Market Committee (FOMC) monetary policy meeting. A 38% minority in the futures market are betting that the Fed will cut short-term rates by 75 basis points at some point between now and March 18^TH.


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 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 or before the March 18^TH, 2008 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 or before the March 18^TH 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.

>  SITEMAP  <

Odds On A 50 Basis Point Cut for Short-Term Rates Now at 96%

Currently, the fed funds futures market is nearly certain the Fed will cut short-term rates by 50 basis points (0.50 percentage point) on or before March 18, despite economic news this week that has many economists concerned about rising prices:

• On Wednesday, the Labor Department released the Consumer Price Index (CPI) figures for January 2008. Consumer prices rose by 0.4% last month, while Wall Street economists were expecting an increase of 0.3%. From January 2007 through January 2008, the CPI increased by 4.3%: not a healthy figure.
  
  
• The price on crude oil for future delivery closed at $98.81 today; crude topped $100 per barrel earlier this week. The price on New York Spot Gold closed at $944.60 earlier this afternoon.
  

On the flip side, contributing to the likelihood the Fed will cut by 50 instead of 25, the Federal Reserve Bank of Philadelphia reported yesterday that its diffusion index of current manufacturing activity in the Philadelphia area (the Fed's Third District) fell from -20.9 for January to -24.0 for this month. Any figure below zero indicates that manufacturing in the Fed's Philadelphia region is contracting, while a positive figure implies expansion. The Fed's Third District includes all of Delaware, parts of southern New Jersey, and a large section of eastern Pennsylvania.

As of right now, the fed funds futures market has odds at 96% that the Fed will cut the benchmark Fed Funds Target Rate by 50 basis points (0.50 percentage point) at or before the March 18^TH Federal Open Market Committee (FOMC) monetary policy meeting. A 4% minority in the futures market are betting that the Fed will cut short-term rates by only 25 basis points at some point between now and March 18^TH.


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 100% (as implied by 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 or before the March 18^TH, 2008 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 or before the March 18^TH 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.

>  SITEMAP  <

Futures Market Still Certain Fed Will Cut Short-Term Rates by At Least 50 Basis Points

In prepared testimony made before the U.S. Senate Committee on Banking, Housing, and Urban Affairs earlier today, Fed boss Ben Bernanke made it pretty clear that the Fed will be cutting short-term rates in the near future -- no surprise really. Here's a clip:

"...A critical task for the Federal Reserve over the course of this year will be to assess whether the stance of monetary policy is properly calibrated to foster our mandated objectives of maximum employment and price stability and, in particular, whether the policy actions taken thus far are having their intended effects. Monetary policy works with a lag. Therefore, our policy stance must be determined in light of the medium-term forecast for real activity and inflation, as well as the risks to that forecast. At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt. At the same time, overall consumer price inflation should moderate from its recent rates, and the public's longer-term inflation expectations should remain reasonably well anchored.

Although the baseline outlook envisions an improving picture, it is important to recognize that downside risks to growth remain, including the possibilities that the housing market or the labor market may deteriorate to an extent beyond that currently anticipated, or that credit conditions may tighten substantially further. The FOMC will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks."

As of right now, the fed funds futures market has odds at 74% that the Fed will cut the benchmark Fed Funds Target Rate by 50 basis points (0.50 percentage point) at or before the March 18 Federal Open Market Committee (FOMC) monetary policy meeting. A 26% minority in the futures market are betting that the Fed will cut short-term rates by 75 basis points at some point between now and March 18.


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 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 or before the March 18^TH, 2008 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 or before the March 18^TH 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.

>  SITEMAP  <

Futures Market Certain of A 50 Basis Point Cut On or Before March 18

Recession fears intensified Tuesday after investors had a chance to digest the numbers from the Institute for Supply Management's Business Activity Index. The index nosedived last month, from 54.4% for December to 41.9% for January. The scale of the decline was punctuated by the fact that any figure below 50% suggests that non-manufacturing sectors of the U.S. economy are contracting.

The Business Activity Index has been shrinking since the summer of last year, but only recently declined precipitously:

• August 2007: 56.3%
• September 2007: 55.7%
• October 2007: 55.5%
• November 2007: 54.6%
• December 2007: 54.4%
• January 2008: 41.9%
  
  

Here's a clip from the January report:

"...The industries reporting growth of business activity in January are: Utilities and Educational Services. The industries reporting decreased business activity in January are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Health Care & Social Assistance; Transportation & Warehousing; Real Estate, Rental & Leasing; Management of Companies and Support Services; Construction; Wholesale Trade; Finance & Insurance; Information; Retail Trade; Public Administration; and Professional, Scientific & Technical Services..."

As of this evening, the fed funds futures market has odds at 80% that the Fed will cut the benchmark Fed Funds Target Rate by 50 basis points (0.50 percentage point) at or before the March 18 Federal Open Market Committee (FOMC) monetary policy meeting. A 20% minority in the futures market are betting that the Fed will cut short-term rates by 75 basis points between now and March 18.


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 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 or before the March 18^TH, 2008 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 or before the March 18^TH 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.

>  SITEMAP  <

U.S. Prime Rate Is Now 6.00%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its first, regularly scheduled monetary policy meeting of 2008, and, in accordance with the latest forecast, the FOMC has just lowered its target for the Federal Funds Rate by 50 basis points (0.50 percentage point) to 3.00%. Therefore, as of today, the U.S. Prime Rate is now 6.00%. Many American banks have already issued a press release announcing that their prime lending rate has been lowered from 6.50% to 6.00%.

Here's a clip from a press release issued by the FOMC earlier today:

"The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred no change in the target for the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 3-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco."

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 67% (as implied by current pricing on contracts) that the FOMC will vote to lower the benchmark Federal Funds Target Rate by 25 basis points (0.25 percentage point) at the March 18^TH, 2008 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will be cut by 25 basis points at the March 18^TH FOMC monetary policy meeting: 67% (more likely than unlikely)
  
  
• 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.

>  SITEMAP  <

Fed Decision Imminent: Odds On A 50 Basis Point Cut at 74%

The economy grew by 0.6% during the fourth quarter of 2007, according to the "advance" estimate released by the Commerce Department this morning. Wall Street economists were expecting around 1.2%. 0.6% growth is certainly slow enough for the Fed to cut aggressively, as expected. The odds that the Fed will cut short-term rates by 50 basis points (0.50 percentage point) are currently at 74%, while odds on a 25 basis point cut are at 26%.

The decision on interest rates will be released in less than one hour. Stay tuned.


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 100% (as implied by 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) today.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will be cut by at least 25 basis points today: 100% (certain)
  
  
• Current odds that the Prime Rate will be cut by 50 basis points today: 74% (more likely than unlikely)
  
  
• NB: U.S. Prime Rate = (The Federal Funds Target Rate + 3)
  

>  SITEMAP  <

Odds on The Fed Cutting by 50 Basis Points Tomorrow at 76% Despite Encouraging Report on Orders for Durable Goods

Some positive news from the economic front today: the Commerce Department reported that new orders for durable, manufactured goods -- products built to last 3 years or more, like DVD players, war planes and cooking ranges -- rose by $11.2 billion (5.2%) during December 2007. Wall Street economists were expecting an increase of about 1.6%. Despite this positive economic news, the fed funds futures market is still 76% certain that the Fed will opt for a 50 basis point (0.50 percentage point) cut for short-term rates tomorrow. The odds on a 25 basis point cut are currently at 24%.

On the negative side, earlier today the Conference Board reported that the Consumer Confidence Index (CCI) fell from last month's 90.6 to 87.9 for this month; discouraging news from a consumer spending perspective. Here are the CCI figures since the summer of last year:

• July 2007: 111.9
  
• August 2007: 105.6
  
• September 2007: 99.5
  
• October 2007: 95.2
  
• November 2007: 87.8
  
• December 2007: 90.6
  
• January 2008: 87.9 (preliminary)
  

For the CCI, the baseline score of 100 is pegged to 1985 survey results.

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 100% (as implied by 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 tomorrow's 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 tomorrow's FOMC monetary policy meeting: 100% (certain)
  
  
• Current odds that the Prime Rate will be cut by 50 basis points at tomorrow's FOMC monetary policy meeting: 76% (more likely than unlikely)
  
  
• 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.

>  SITEMAP  <

Odds On A 50 Basis Point Cut for January 30 Now at 78%

The Fed will make its next decision on short-term interest rates on January 30, and as we approach that date, the odds from the fed funds futures market have, with increasing confidence, been predicting that the Fed will opt for a 50 basis point (0.50 percentage point) cut. The odds on a 50 basis point cut for the benchmark Fed Funds Target Rate now stand at 78%, and the remaining odds -- 22% -- are for a 25 basis point cut.

Let's have a quick look at what might have influenced the futures market recently.

Though both the Dow Jones Industrial Average (DJIA) and the S&P 500 Index advanced on the week, both indexes are still down significantly since each peaked last fall. Since closing with all-time highs on October 9, 2007, the DJIA is now down 1,957.36 points (13.819%), while the S&P 500 is down 234.54 points (14.985%).

The yield on the benchmark 10-Year Treasury Note fell to 3.584%. For some perspective, the yield was 4.65% on October 9, 2007.

Also notable: New York Spot Gold closed at $910.50 per ounce on Friday.


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 100% (as implied by 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 January 30^TH, 2008 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 January 30^TH FOMC monetary policy meeting: 100% (certain)
  
  
• Current odds that the Prime Rate will be cut by 50 basis points at the January 30^TH FOMC monetary policy meeting: 78% (more likely than unlikely)
  
  
• 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.

>  SITEMAP  <

Futures Market Still Certain Of Rate Cut for January 30; Odds On A 50 Basis Point Cut Now at 68%

Last Saturday, while most Wall Street economists were predicting that the Fed would cut rates by 50 basis points by January 30, the fed funds futures market was 72% certain that the Fed would cut by 75 basis points at or before the January 30 Federal Open Market Committee (FOMC) meeting. On Tuesday, we learned that the futures market had indeed nailed it, as usual. The Fed executed an intermeeting rate cut of 75 basis points, prompted by significant market losses in Asia and Europe on the Martin Luther King holiday.

The stock market has been looking healthier since Tuesday. The Dow Jones Industrial Average (DJIA) gained 108.44 points today, while the S&P 500 advanced by 13.47. Another positive piece of news: crude oil for future delivery is currently trading at $89.61 per barrel (crude closed at $97.91 on January 4, 2008.)

On the negative side, New York Spot Gold closed at $912.30 per ounce today, and the yield on the 10-Year Treasury Note closed at 3.64%. In other words: money is still moving to safe havens.

The news that has almost certainly been influencing the fed funds futures market the most today came from the housing sector. Earlier today, the National Association of Realtors® reported that sales of previously occupied homes fell by 2.2% last month, and sales were down by 22% from December '06 to December '07. The median price for a preowned home fell to $208,400, while the average price fell to $254.900 (preliminary data.) In the Northeast United States, the median price on a used home was down 8.9% for the December '06 to December '07 period.

The fed funds futures market is still 100% certain that the Fed will cut short-term rates by at least 25 basis points (0.25 percentage point) when the FOMC meets on January 30. As of right now, the market has odds at 68% that the Fed will cut short-term rates by 50 basis points, and current odds are at 32% that the Fed will opt instead for a 25 basis point cut on January 30.

Here's what these odds mean to all you hard working consumers out there: You can expect any loan that's tied to the WSJ Prime Rate (home equity lines of credit, variable-rate credit cards, business loans, personal loans, etc.) to be 1.00 percentage point lower by March (or April at the latest.) So if you have a variable-rate credit card that's indexed to Prime, and your current APR is 12%, you can look forward to your rate dropping to 11% within the next 2 months.

For those of you with a mortgage indexed to LIBOR, another Fed rate cut at the end of this month is great news for you too, because the LIBOR rates tend to move in tandem with the benchmark Fed Funds Target Rate.

If you've been patiently waiting for just the right time to borrow, then you may want to wait a little while longer. The current cycle of Fed rate cuts may continue after January. Stay tuned for the latest odds.


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 100% (as implied by 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 January 30^TH, 2008 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 January 30^TH 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.

>  SITEMAP  <

U.S. Prime Rate Is Now 6.50%

Earlier today, the Federal Open Market Committee (FOMC) of the Federal Reserve adjourned an emergency monetary policy meeting, and, in accordance with the latest forecast, the FOMC has just lowered its target for the Federal Funds Rate by 75 basis points (0.75 percentage point) to 3.50%. Therefore, as of today, the U.S. Prime Rate is now 6.50%. Many American banks have already issued a press release announcing that their prime lending rate has been lowered from 7.25% to 6.50%.

Here's a clip from a press release issued by the FOMC earlier today:

"The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent.

The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Eric S. Rosengren; and Kevin M. Warsh. Voting against was William Poole, who did not believe that current conditions justified policy action before the regularly scheduled meeting next week. Absent and not voting was Frederic S. Mishkin.

In a related action, the Board of Governors approved a 75-basis-point decrease in the discount rate to 4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Chicago and Minneapolis."

Despite today's intermeeting move by the Fed, the futures market is 100% certain that the Fed will cut short-term rates again on January 30^TH.


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 100% (as implied by 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 January 30^TH, 2008 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 January 30^TH 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.

>  SITEMAP  <

Odds That The Fed Will Cut Short-Term Rates by 75 Basis Points Now at 72%

Despite a significant rise for the Consumer Sentiment Index this month -- from 75.5 for December to 80.5 for January -- investors pulled more money out of stocks and into safer investments like U.S. Treasuries. Since closing with record highs on October 9, 2007, the Dow Jones Industrial Average (DJIA) has now lost 2,065.23 points (14.58%), while the S&P 500 has lost 239.96 points (15.331%). Yikes! On Friday, the yield on the 10-Year Treasury Note fell to 3.648%.

Last week, I remarked at how intense the odds from the fed funds futures market were looking. This week, the odds are still pretty intense. No one is betting that the Fed will cut rates by a wimpy 25 basis points (0.25 percentage point) by January 30 anymore. The future market now sees a 72% chance that the Fed will cut the benchmark Fed Funds Target Rate by 75 basis points (0.75 percentage point) by January 30^TH. In other words, the futures market believes, with 100% certainty, that the Fed will cut short-term rates by at least 50 basis points by the end of the month, with odds at 28% that we will get a cut of no more than 50 basis points by January 30^TH.

What do these odds mean in real world terms? Well, if you have a variable-rate credit card that's indexed to the WSJ Prime Rate, then chances are your APR will be 0.50 percentage point lower by the time January 31 arrives. This is true for any loan or credit product that's tied to the U.S. Prime Rate. For some consumers, it may take a month or so for your bank to implement the rate change, but it's something you can look forward to.


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 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 30^TH, 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 30^TH 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.

>  SITEMAP  <

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 30^TH, 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 30^TH 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.

>  SITEMAP  <

Odds On A 50 Basis Point Cut for January 30 Hit 90% On Bernanke Comments

The implied odds that the Fed will opt for an aggressive 50 basis point (0.50 percentage point) cut on January 30 jumped to 90% after the fed funds futures market had a chance to digest comments made by Fed boss Ben Bernanke this morning. Here's a clip from Bernanke's speech at the Women in Housing and Finance / Exchequer Club Joint Luncheon in Washington, D.C.:

"...Monetary policy has responded proactively to evolving conditions. As you know, the Committee cut its target for the federal funds rate by 50 basis points at its September meeting and by 25 basis points each at the October and December meetings. In total, therefore, we have brought the funds rate down by a percentage point from its level just before financial strains emerged. The Federal Reserve took these actions to help offset the restraint imposed by the tightening of credit conditions and the weakening of the housing market. However, in light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary. The Committee will, of course, be carefully evaluating incoming information bearing on the economic outlook. Based on that evaluation, and consistent with our dual mandate, we stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks..."

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 Federal Open Market Committee (FOMC) will vote to lower the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at the January 30^TH, 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 January 30^TH 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.

>  SITEMAP  <

A 50 Basis Point Cut Is Now More Likely Than A Quarter-Point Cut for January 30

Nonfarm payrolls advanced by 18,000 during December 2007, according to this morning's Labor Department report. Wall Street economists were expecting around 70,000 new jobs for last month. News that the unemployment rate jumped from 4.7% to 5.0% also surprised economists, many of whom were expecting the jobless rate to come in at 4.8%.

The investors who trade in fed funds futures reacted to today's employment report by raising bets that the Fed will opt for an aggressive cut on January 30. The futures market is still 100% certain that the Fed will lower the benchmark fed funds target rate at the end of the month; the odds on a 50 basis point (0.50 percentage point) cut are now at 68%, and the odds on a 25 basis point cut are currently at 32%.

Wall Street reacted bearishly to today's jobs report: the Dow Jones Industrial Average (DJIA) fell by 256.54 points (1.96%), the NASDAQ Composite lost 98.03 points (3.77%) and the S&P 500 declined by 35.53 points (2.46%). The yield on the 10-year treasury note fell to 3.854% and New York Spot Gold closed at $863.00 per ounce.


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 elect to lower the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at the January 30^TH, 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 January 30^TH 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.

>  SITEMAP  <

Odds On A Rate Cut for the January 30 Monetary Policy Meeting Now at 100%

The odds that the Fed will cut short-term rates on January 30^TH hit 100% today on discouraging news related to U.S. manufacturing, and the release of minutes from the December 11^TH Federal Open Market Committee (FOMC) meeting. In fact, the implied odds that the Fed will opt for an aggressive 50 basis point (0.50 percentage point) cut are now at 24%, with odds of a 25 basis point cut at 76%.

Influencing the futures market today:

• The Institute for Supply Management's Purchasing Manager's Index (PMI) for December came in at 47.7%. With the PMI, any figure above 50% suggests that the U.S. manufacturing is expanding, while any figure below 50% suggests that manufacturing is contracting. Wall Street economists were expecting around 50.9% for December. The PMI has been falling since June of 2007. This news adds credence to the notion that a recession may be in the offing.
  
  
• Earlier this afternoon, the FOMC released the minutes from it's December 11^TH monetary policy meeting. Here's a clip:
  
  

  "...Participants noted the marked deceleration in consumer spending in the national data. Real personal consumption expenditures had shown essentially no growth in September and October, suggesting that tighter credit conditions, higher gasoline prices, and the continuing housing correction might be restraining growth in real consumer spending. Retailers reported weaker results in many regions of the country, but in some, retailers saw solid growth. Job growth rebounded somewhat in October and November, and participants expected continuing gains in employment and income to support rising consumer spending, though they anticipated slower growth of jobs, income, and spending than in recent years. However, consumer confidence recently had dropped by a sizable amount, leading some participants to voice concerns that household spending might increase less than currently anticipated.
  
  Recent data and anecdotal information indicated that the housing sector was weaker than participants had expected at the time of the Committee’s previous meeting. In light of elevated inventories of unsold homes and the higher cost and reduced availability of nonconforming mortgage loans, participants agreed that the housing correction was likely to be both deeper and more prolonged than they had anticipated in October. Moreover, rising foreclosures and the resulting increase in the supply of homes for sale could put additional downward pressure on prices, leading to a greater decline in household wealth and potentially to further disruptions in the financial markets..."
  

The prospect of another rate cut by the Fed sent the price of gold and crude oil higher today: crude for future delivery is currently trading at $99.60 per barrel, with New York Spot Gold at $858.20 per ounce.


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 25 basis points (0.25 percentage point) at the January 30^TH, 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 January 30^TH 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. Odds may experience a significant shift on the release of the following economic report:

• Friday, January 4, 2008: The Labor Department releases the December Employment Situation Report.

>  SITEMAP  <

Odds On A Rate Cut for the January 30 Monetary Policy Meeting Now at 94%

A mixed report on existing home sales caused the odds on a rate cut for next month to jump to 94% today. According to the National Association of Realtors®, sales of previously occupied homes enjoyed a 0.4% increase last month. This positive news was, however, tempered by comparisons to years past. Between November '06 and November '07, sales of preowned homes were down 20%, while the median price fell by 3.3%. Here's a sampling of the median cost of a preowned home since November, 2005:

• November 2005: $225,000
  
  
• November 2006: $217,300
  
  
• November 2007: $210,200 (preliminary data)

Nationwide, the inventory of preowned homes for sale fell from 4,433,000 to 4,273,000 units at the end of last month, which should help to stem the decline in prices.

Click here for historical prices and a chart.


The Latest Odds

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 94% (as implied by current pricing on contracts) that the Federal Open Market Committee (FOMC) will elect to lower the benchmark Federal Funds Target Rate by 25 basis points (0.25 percentage point) at the January 30^TH, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will be cut to 7.0% at the January 30^TH FOMC monetary policy meeting: 94% (very 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 continually changing, so stay tuned for the latest odds. Odds may experience a significant shift on the release of the following economic report:

• Friday, January 4, 2008: The Labor Department releases the December Employment Situation Report.

>  SITEMAP  <

Odds On A Rate Cut for the January 30 Monetary Policy Meeting Now at 90%

The odds that the Fed will cut short-term interest rates next month jumped to 90% on Friday, after news of dismal November new home sales. According to the Commerce Department, new home sales fell by 9.0% last month. Furthermore, the modest advance of new home sales during September and October were revised downward. Between November '06 and November '07, sales of new homes declined by 34.4%.

Nationwide, the median price of a shiny new home was $239,100 during November, while the average price was $293,300. The number of new homes for sale at the end of last month fell from 519,000 to 509,000.

The cost of a newly built home peaked back in March of this year, when the median price was $262,600, and the average was $329,400 (click here for historical prices.)


The Latest Odds

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 90% (according to current pricing on contracts) that the FOMC will elect to lower the benchmark Federal Funds Target Rate by 25 basis points (0.25 percentage point) at the January 30^TH, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will be cut to 7.0% at the January 30^TH FOMC monetary policy meeting: 90% (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 continually changing, so stay tuned for the latest odds. Odds may experience a significant shift on the release of the following economic report:

• Friday, January 4, 2008: The Labor Department releases the December Employment Situation Report.

>  SITEMAP  <

Odds On A Rate Cut for the January 30 Monetary Policy Meeting Now at 76%

The Federal Reserve has been auctioning off big bundles of money to U.S. financial institutions in recent weeks, and news that the Fed will continue using its Term Auction Facility (TAF) to pump money into the banking system has caused the odds on a rate cut for next month to decline. The fed funds futures market, however, is still betting that the Fed will opt to lower short-term interest rates again on January 30.

The odds on a cut for the benchmark Fed Funds Target Rate at the next Federal Open Market Committee (FOMC) meeting are now at 76%. Influencing the futures market last week:

• On Wednesday, the U.S. Energy Information Administration (EIA) repo