Odds On A Rate Cut for the October 31 FOMC Meeting Shoot Up to 70% On Higher-Than-Expected Unemployment Insurance Claims

Early this morning, the Labor Department reported that 337,000 Americans lined up to claim unemployment benefits for the first time during the week that ended on October 13. This news came as a surprise to Wall Street, as economists were expecting around 312,000 new claims for unemployment benefits.

The fed funds futures market reacted swiftly to the latest employment news. The odds on a rate cut for October 31, which were at 54% yesterday, are now at 70%. Still not a sure thing, but there's still plenty of time before the Halloween decision about short-term rates, and the markets that move commercial paper are still quite constipated. Stay tuned.


The Latest Odds

As of right now, the investors who trade in fed funds futures have odds at 70% (according to current pricing on contracts) that the FOMC will vote to cut the benchmark Federal Funds Target Rate by 25 basis points at the October 31^ST, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

• Current odds that the Prime Rate will be cut to 7.5% after the October 31^ST, 2007 FOMC monetary policy meeting: 70% (somewhat likely)
  
  
• NB: U.S. Prime Rate, currently @ 7.75%, = (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:

• Wednesday, October 24, 2007: The National Association of Realtors® releases the Existing Home Sales report for September.

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