Futures Market 100% Certain U.S. Prime Rate Will Remain At 3.25% After The August 10 FOMC Monetary Policy Meeting

President Obama singed the Wall Street Reform and Consumer Protection Act into law today; the title of this law says it all.

The new law is sweeping, and it took a lot of Congressional dealmaking to get it passed. But there's still much more to come, for soon regulators will need to craft new rules, and, of course, lobbyists will try their best to get these new rules written in a way that favors their clients.

The White House released a top ten list of items the American people should know about in the new law. Here it is:

1. Stronger protections for consumers against unfair credit card practices like rate hikes for existing credit card balances.
   
   
2. Mortgage brokers will be prohibited from making higher commissions by selling mortgages they know consumers can’t afford.
   
   
3. Free annual credit scores so people can stay on top of their finances. [Clarification: free credit scores are available if you receive worse terms on a loan because of something on your credit report, or if you are rejected.]
   
   
4. No more taxpayer-funded bailouts. If a company can’t make it, it will have to liquidate.
   
   
5. Greater input by company shareholders over how much a CEO gets paid. And companies’ compensation boards are now required to be truly independent.
   
   
6. Brokers who offer investment advice will have to act in the best interests of their customers, not their own financial interests.
   
   
7. Financial firms won't be allowed to grow so large that if one fails, it will affect the entire financial system.
   
   
8. There will be one agency whose sole job is to make sure that consumers get the protections they deserve and to set clear rules to hold banks, mortgage companies, payday lenders, and credit card lenders accountable.
   
   
9. Businesses can't be charged extra fees for debit card “swipe fees” that exceed the cost of processing transactions.
   
   
10. You can learn plenty more here at WhiteHouse,gov or at financialstability.gov

There's also a cool video here.

Here's what Fed boss Ben Bernanke had to say about it:

"...The financial reform legislation approved by the Congress today represents a welcome and far-reaching step toward preventing a replay of the recent financial crisis. It strengthens the consolidated supervision of systemically important financial institutions, gives the government an important additional tool to safely wind down failing financial firms, creates an interagency council to detect and deter emerging threats to the financial system, and enhances the transparency of the Federal Reserve while preserving the political independence that is crucial to monetary policymaking. Even before passage of reform legislation, the Federal Reserve has been overhauling its supervision and regulation of banking organizations and working to strengthen financial market infrastructures and practices. We will be focused and diligent in carrying out our responsibilities under the new law..."

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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 August 10^TH 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 10^TH, 2010 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.

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Fourth FOMC Meeting of 2010 Adjourned: U.S. Prime Rate Remains At 3.25%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its fourth monetary policy meeting of 2010 and, in accordance with our most recent forecast, has voted to leave short-term interest rates at their current levels. Therefore, the benchmark target range for the federal funds rate will remain at 0% - 0.25%, and the Wall Street Journal® Prime Rate (also known as the U.S., national or Fed Prime Rate) will remain unchanged at the current 3.25%.

Here's a clip from today's FOMC press release (note the text in bold):

"... Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time.

Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly..."

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Futures Market 100% Certain U.S. Prime Rate Will Remain At 3.25% After The June 23 FOMC Monetary Policy Meeting

Looks like Wall Street is loosing faith that the American economy can pull off a sustained and lasting recovery.

Earlier today, stocks reacted negatively to news that retail sales fell by 1.2% last month. Wall Street economists were expecting a rise of 0.2%.

Moreover, Wall Street money, which was starting to make it's way back to stocks and other relatively risky investments, now seems to be turning back to the safety of government debt. The yield on the 3-month US Treasury Bill fell to 0.07% moments ago. It was as high as 0.17% as recently as May 19 of this year.

The yield on the benchmark 10-year Treasury Note fell to 3.22% today. It was 3.90% as recently as April 8 of this year.

New York Spot Gold is currently trading at $1,226.50 per ounce. Yikes! It was $938.30 per ounce about a year ago (June 12, 2009.)

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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 23^RD, 2010 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 23^RD, 2010 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.

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Futures Market 98% Certain U.S. Prime Rate Will Remain At 3.25% After The June 23 FOMC Monetary Policy Meeting

Canada Raises Rates

Yesterday, Canada's central bank -- the Bank of Canada -- raised its key, short term interest rate by 25 basis points (0.25 percentage point.) Canada is the first G-7 nation to raise short-term rates since the banking crisis and subsequent Great Recession prompted central banks around the world to cut rates to record-low levels. The move by the Bank of Canada also ends the game of chicken that's been going on between the world's most powerful economies.

Included in the G-7: The United States, Japan, Germany, France, the United Kingdom, Italy and Canada.

Australia's central bank -- The Reserve Bank of Australia (RBA) -- began a cycle of rate hikes back on October of 2009.

US Manufacturing Continues to Expand

Also from yesterday: the Institute for Supply Management reported that its Purchasing Manager's Index (PMI) declined from 60.4 for April to 59.7% for May. A decline may seem negative but this is actually positive news. That's because for the PMI, any figure above 50% suggests that, in general, the American manufacturing sector is expanding, while any figure below 50% suggests contraction.

According to the PMI, American manufacturing has been in expansion mode since August of 2009. The PMI hit rock bottom during the height of the global banking crisis: it was 32.5% during December of 2008. Not quite a record low, but close. It was 30.3% during June of 1980.



Again from yesterday, the Commerce Department reported that construction spending rose by 2.7% last month. For a better perspective on how well the American construction sector is doing, however, best to have a glance at this chart:


Yep.

The above charts: courtesy Econoday.

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Of course, futures markets reacted to the above news. 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 June 23^RD, 2010 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 23^RD, 2010 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.

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Futures Market 90% Certain U.S. Prime Rate Will Remain At 3.25% After The June 23 FOMC Monetary Policy Meeting

Which unemployment rate should we pay attention to? U-3 or U-6? U-3 is the headline or official unemployment rate, the one you hear when listening to business news. The Labor Department defines U-3 as:

"Total unemployed, as a percent of the civilian labor force"

Whereas U-6 is defined as:

"Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force"

U-3 is the headline, because it paints a rosier picture than the reality of the employment situation in the U.S. But why would you not take into account Americans who are unemployed, who need an income and who have given up looking for work? Makes no sense.

Here's how I see it. If you need an income, you're unemployed. If you have a job and don't have health insurance, you're unemployed. If you're working yet can't meet your most urgent financial obligations, like paying child support and your mortgage, then you're unemployed. That's why U-6 is the only gauge that matters.

Today the nation learned that the official unemployment rate (U-3) in the U.S. jumped from the January through March rate of 9.7% to 9.9% for April. The Labor Department put a positive spin on this by noting that the higher jobless figure was due to previously discouraged American workers getting off the couch and starting to look for work again. U-6 stood at 17.1% for April.

During April, American companies added 290,000 new jobs to their non-farm payrolls, while the new jobs figure for February and March were revised up to a total of 120,000.


It's been a while since we've seen the future market less than 100% certain that the Fed will keep short-term rates (including the U.S. Prime Rate) where they are, but it's still a safe bet that the Fed will remain on the sidelines for at least one more FOMC monetary policy meeting.

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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 June 23^RD, 2010 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 23^RD, 2010 FOMC monetary policy meeting is adjourned: 90% (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.

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Appealing Your Property Tax Bill

A tour around a typical American neighborhood reveals more “For Sale” signs than ever before. Reports further indicate that foreclosures will crest during the second half of 2010. And even more people now have mortgage loans that are actually higher than the home’s value. All this sums up to one hard fact: in most parts of the US property values are steadily decreasing.

Unfortunately, your annual property tax bill does not necessarily reflect this fact. Have you taken a close look at your assessment lately? If not, it certainly is time that you did just that. Many jurisdictions automatically increase property tax assessments by as much as 10% each and every year, regardless of property values.

Because most people with mortgages have their property tax bills escrowed they pay little attention to how much the mortgage carrier pays on their behalf. Don’t let this stop you from scrutinizing your property tax bill and moving forward with an appeal. Should the tax assessor rule in your favor, you will likely see reduced mortgage payments in the coming year, which is money in your pocket.

While doing some research is not required to state your appeal case to the local tax assessor, it certainly does not hurt. First, take a long look at your bill. It should list the “Fair Cash Value” of your home. If this number seems off the mark, contact the Assessors Office and ask for a detailed assessment of your property. Perhaps they have you listed as a 2-story when your home is a ranch, or they list an attached garage when yours is detached. You may also want to invest approximately $250-$400 and get an appraisal of your property. If you spend this small sum of money in order to get your property tax bill reduced by $1,000 or more it will certainly be money well spent. Further, if you have recently gotten refinanced or signed on for a home equity loan an appraisal would have already been done. Compare that paperwork against your property tax bill Fair Market Value to make certain it is within a fairly close range.

Next, make certain that if you occupy the home in question that the Homestead Exemption is taken into account. If you are a senior citizen, be sure that there is also a senior exemption.

Now that you have determined that your bill is too high, contact your tax assessor either by telephone or email. Explain to them that you would like to appeal your bill and ask them what process needs to be followed. In most cases there is a short form that needs to be completed and sent back to their offices. There should be no need to hire a real estate attorney or other professional to completely this process. In one afternoon and with very little effort you can see a huge return!

Astute property owner Jon Soderstrom of suburban Chicago has made it a policy for the past fifteen years to examine his assessment and appeal any undue increases. As Mr. Soderstrom noted, “I just told them there was no increase in property value therefore no increase in taxes was justified”. He went on to proudly announce that he has never lost an appeal.

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