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.

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