Will the Fed Drop Rates?

A majority of economists are predicting at least another quarter point drop in interest rates will be announced by the Fed tomorrow with an outside chance of a half point decrease. Recent economic releases which have highlighted just how sluggish the U.S. economy has become have bolstered the ability of the Fed to aggressively lower rates, although they will be fast approaching their floor of 0.00% rates if they move to dramatically. Some economists believe the Fed will wait until after the Presidential election before moving rates, but will strongly suggest with their released statement that a move is imminent. Futures at the Chicago Board of Trade are trading with an implied Fed Funds rate of:

December 2008 contract - 0.84%

January 2009 contract - 0.84%

February 2009 contract - 0.86%

March 2009 contract - 0.90%

April 2009 contract - 0.97%

May 2009 contract - 1.05%

June 2009 contract - 1.07%

July 2009 contract - 1.16%

August 2009 contract - 1.28%

If the Fed does go ahead and lower the target rate for the Fed Funds rate below its current level of 1.50%, then banks will also adjust their prime lending rate from its current level of 4.50%. Many consumers with loans and credit cards tied to the prime rate will benefit with lower finance charges and lower minimum monthly payments.