Odds On Future Prime Rate Increases Have Changed Since Ben Bernanke Spoke Before The Joint Economic Committee This Morning

Speaking before the Joint Economic Committee of The United States Congress this morning, Fed Chairman Ben Bernanke made the following remarks (snippets below):

"...Future policy actions will be increasingly dependent on the evolution of the economic outlook, as reflected in incoming data..."

"...Even if in the committee's judgment the risks to its objectives are not entirely balanced, at some point in the future, the committee may decide to take no action at one or more meetings in the interest of allowing more time to receive information relevant to the outlook..."

"...A decision to take no action at a particular meeting does not preclude actions at subsequent meetings..."

"...To support continued healthy growth of the economy, vigilance in regard to inflation is essential..."

"The outlook to inflation is reasonably favorable, but carries some risk...The risks exist that strengthening demand for final products could allow firms to pass on a greater portion of their cost increases in the future."

The Latest Prime Rate Predictions

The investors who trade in Federal Funds Futures are still predicting with odds at 100% (according to current pricing) that the FOMC will raise the benchmark Fed Funds Target Rate by another 25 basis points (0.25 percentage points) when The FOMC convenes their third monetary policy meeting for 2006, which is scheduled to take place on May 10^th, 2006. A quarter point increase to the benchmark Fed Funds Target Rate would, of course, translate to a nationwide Prime Rate increase from the current 7.75% to 8.00%. Economists, academics, and Wall Street rate watchers are all predicting a 25 basis point rate hike on May 10^th as well.

The odds on another 0.25 percentage point increase after the FOMC adjourns their fourth FOMC meeting for 2006, which is set to convene on June 28-29, 2006, have changed as a result of today's remarks by Dr. Bernanke: Fed Funds Futures traders are now predicting (according to current pricing) a 36% chance that The FOMC will raise the cardinal Fed Funds Rate by another 0.25 percentage points when the June 28-29 meeting adjourns. Prior to Bernanke's comments today, odds were @ 64%.

The odds that have been referenced in this blog entry change on a regular basis, so stay tuned for the latest odds.


The current U.S. Prime Rate (Wall Street JournalĀ® Prime Rate) is 7.75%, and the consensus among investors, economists, academics and Wall Street rate watchers is that we'll have a national Prime Rate of 8.00% after the FOMC adjourns on May 10^th, 2006.

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