Will the Fed Lower the Federal Funds Rate?

Fed watchers have been buried with conflicting economic data as GDP, employment, consumer confidence, and even CPI (consumer price inflation) show an economy under control, while energy and food prices have increased significantly pressuring American consumers. Recent comments by the Fed indicate that the priority of keeping inflation in a narrow range of 1% to 3% - and preferably closer to 2% - remains in place. Trading in the futures contract of the 30-day Federal Funds rate, sometimes considered the smart money when guessing the directions of the Fed, indicates a decrease in the Federal Funds rate before 2008:

Implied Yield in current prices of Fed Funds Futures Contracts:

October 2007 expiration - 5.18%
November 2007 expiration - 5.14%
December 2007 expiration - 5.07%

CURRENT FED FUNDS RATE = 5.25%

source: Chicago Board of Trade

The Fed meet on August 7th and the general consensus is that a move at that meeting is extremely unlikely. If economic in the third quarter is strong or if the U.S. dolalr continues to depreciate the Fed may also opt for holding the line on rates, but at the moment the probability of the Fed decreasing rates in the fall or winter appears more likely than a rate increase or no change to rates. More information available here.