Wednesday, May 31, 2006

Add Another 25bps to Your ARM this Summer

The next time some relative or Realtor tries to tell you that the Fed is going to stop raising interest rates, consult this Cleveland Fed link to determine which way rates are going for yourself.

The chart on the Cleveland Fed page shows the probability of a rate increase or decrease based on the value of options on Federal Fund Futures. In this case, the chart is showing that the market believes the chances of a 25 bps increase to 5.25% are about 53% for the June meeting.

The probability of hitting 5.25% in August is about 38%, therefore, the probability of a 25 bps rate hike in June or August is about 91%.

4 Comments:

Blogger njcoast said...

That's another notch tighter on the rack for the overleveraged specuvestor. Ouch!

Wednesday, May 31, 2006 6:18:00 PM  
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