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Prime Rate

also known as the Fed, National, U.S. and WSJ Prime Rate

Thursday, June 26, 2003

Wow! The Cheapest Money Since 1958: WSJ Prime Rate Lowered by 0.25 Percentage Points to 4%

WSJ Prime Rate watchers: this is a day to remember! Not since 1958 has the prevailing prime rate been as low as 4 percent. Bottom line: if you've been waiting for the right time to buy that dream home, or that dream car, or that boat of your dreams, now's the time to get that loan. The long terms savings that can be realized by borrowing now can be much more than significant, they can be down right unbelievable. Just visit any mortgage calculator that can calculate the total interest you'll fork over on a mortgage if that mortgage is paid to term and see for yourself; compare a mortgage with a 5% interest rate to one with a 6% or 7% rate: the savings can be in the many tens of thousands. That's money you could use to save for a child's education, or, from a more adventurous perspective, a dream vacation or that motorcycle you always wanted. Yup, jump into the borrowing game now while the money is still red hot. The Fed Funds Rate is at a very low 1% and this rate may be raised at the next Fed meeting (which should take place in about 2 months.)

Is the economy really doing that poorly? Well, to help frame this latest rate news, you may find it interesting to know that San Francisco Fed President Robert T. Parry wanted to lower the Fed Funds target rate by 50 basis points (or 0.50 percentage points) as opposed to the 25 basis point decrease that was approved. Yikes!

Within the next day or two, the published Wall Street Journal Prime Rate will be lowered by 25 basis points to 4.00%. The corresponding Fed Funds Rate is now 1.00% (believe it!) Here's a piece of the Federal Open Market Committee's * press release:

The Federal Open Market Committee decided today to lower its target for the federal funds rate by 25 basis points to 1 percent. In a related action, the Board of Governors approved a 25 basis point reduction in the discount rate to 2 percent.

The Committee continues to believe that an accommodative stance of monetary policy, coupled with still robust underlying growth in productivity, is providing important ongoing support to economic activity. Recent signs point to a firming in spending, markedly improved financial conditions, and labor and product markets that are stabilizing. The economy, nonetheless, has yet to exhibit sustainable growth. With inflationary expectations subdued, the Committee judged that a slightly more expansive monetary policy would add further support for an economy which it expects to improve over time.

The Committee perceives that the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. In contrast, the probability, though minor, of an unwelcome substantial fall in inflation exceeds that of a pickup in inflation from its already low level. On balance, the Committee believes that the latter concern is likely to predominate for the foreseeable future.

Happy borrowing to all!



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