Odds Hit 90% That Another Prime Rate Increase Will Occur on June 29

Earlier today, the U.S. Department of Labor's Bureau of Labor Statistics released the Producer Price Index (PPI) numbers for May, 2006. The PPI numbers weren't devastating, but combine today's PPI numbers with central bankers' recent comments expressing concern about inflation, and you've got yourself a recipe for another interest rate increase when the Federal Open Market Committee (FOMC) adjourns their next monetary policy meeting on June 29.

According to current pricing on Federal Funds Futures contracts, the odds that the FOMC will elect to raise the benchmark Fed Funds Target Rate on June 29 are now at about 90%. Prior to today's PPI report, odds were at about 86%.

If the FOMC votes to raise the Federal Funds Target Rate from the current 5.00, to 5.25% on June 29, then the U.S. Prime Rate (Wall Street JournalĀ® Prime Rate) will rise from the current 8.00%, to 8.25%.


The odds related to Fed 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 visit this blog often for the latest odds. Odds will likely shift again after the Consumer Price Index (CPI) report for May is released tomorrow. Stay tuned!

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