Stable Fed Rate Odds

Focus on the Fed's moves on interest rates is not as intense as it once was, with investors lowering their sights on rate-cut odds and shifting their attention to the many unconventional actions taken by the Fed to provide liquidity to the financial system and to the effects of past rate cuts.

In other words, investors really don't care much as to whether there will be another interest-rate cut; rate cuts are not seen as being all that useful to solve what ails the economy and the financial markets.

The market is priced for 18% odds that the Fed will cut the funds rate by 25 basis points at the June 25 FOMC meeting, the same odds as Thursday, and close to the 16% odds placed last Friday.

For the Aug. 5 FOMC meeting, the market is priced for 24% odds of a cumulative 25 basis points in cuts (a 1.75% funds rate), also the same odds as Thursday.

For the end of 2008, the market is priced for the funds rate to be 2.06%, which means that the market is contemplating the possibility of a rate hike by year's end.

The chances of a hike were much higher just two weeks ago when the market was priced for a 2.31% funds rate. The timing for a hike has now been pushed back to March 2009.

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Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market, first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.

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