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Prime Rate

also known as the Fed, National, U.S. and WSJ Prime Rate,
from the interest rate specialists at FedPrimeRate.comTM

Wednesday, October 29, 2008

U.S. Prime Rate Is Now 4.00%

U.S. Prime Rate is cut to 4.00%The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its seventh scheduled monetary policy meeting of 2008, and, in accordance with the latest forecast, has just lowered its target for the Federal Funds Rate by 50 basis points (0.50 percentage point) to 1.00%. Therefore, as of today, the U.S. Prime Rate is now 4.00%.

Here's a clip from a press release issued by the FOMC moments ago:

"...The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 1 percent.

The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.

Recent policy actions, including today’s rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, and San Francisco..."

Many American banks have already issued a press release announcing that their prime lending rate has been lowered from 4.50 to 4.00%.

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Wednesday, October 08, 2008

U.S. Prime Rate Is Now 4.50%

U.S. Prime Rate is cut to 4.50%The Federal Open Market Committee (FOMC) of the Federal Reserve, in an unscheduled monetary policy meeting, but in accordance with the latest forecast, has just lowered its target for the Federal Funds Rate by 50 basis points (0.50 percentage point) to 1.50%. Therefore, as of today, the U.S. Prime Rate is now 4.50%.

Here's a clip from a press release issued by the FOMC moments ago:

"...The Federal Open Market Committee has decided to lower its target for the federal funds rate 50 basis points to 1-1/2 percent. The Committee took this action in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures.

Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit. Inflation has been high, but the Committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.

The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1-3/4 percent. In taking this action, the Board approved the request submitted by the Board of Directors of the Federal Reserve Bank of Boston..."

Many American banks have already issued a press release announcing that their prime lending rate has been lowered from 5.00 to 4.50%.

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Tuesday, September 16, 2008

Sixth FOMC Meeting of 2008 Adjourned: The Prime Rate Remains at 5.00%

Fed votes to leave short-term rates at their current levelsThe Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its sixth monetary policy meeting of 2008 and has voted to leave short-term interest rates at their current levels. Therefore, the benchmark Federal Funds Target Rate will remain at 2.00%, and the Wall Street Journal® Prime Rate (also known as the U.S., Fed or national Prime Rate) will remain at the current 5.00%.

Here's a clip from the press release that has just been issued by the FOMC:

"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Ms. Cumming voted as the alternate for Timothy F. Geithner"

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Tuesday, August 05, 2008

Fifth FOMC Meeting of 2008 Adjourned: The Prime Rate Remains at 5.00%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its fifth monetary policy meeting of 2008, and, in keeping with the latest forecast, the FOMC has voted to leave short-term interest rates at their current level. Therefore, the benchmark Federal Funds Target Rate will remain at 2.00%, and the Wall Street Journal® Prime Rate (also known as the U.S., Fed or national Prime Rate) will remain at the current 5.00%.

Here's a clip from the press release that was issued by the FOMC earlier this afternoon:

"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting."

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Wednesday, June 25, 2008

Fourth FOMC Meeting of 2008 Adjourned: The Prime Rate Remains at 5.00%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its fourth monetary policy meeting of 2008, and, in keeping with the latest forecast, the FOMC has voted to leave short-term interest rates at their current level. Therefore, the benchmark Federal Funds Target Rate will remain at 2.00%, and the Wall Street Journal® Prime Rate (also known as the U.S., Fed or national Prime Rate) will remain at the current 5.00%.

Here's a clip from the press release that was issued by the FOMC earlier this afternoon:

"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters.

The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time. Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting."

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Tuesday, June 03, 2008

FOMC Meeting Schedule (Tentative) for 2009

Earlier today, The Federal Open Market Committee (FOMC) released its tentative monetary policy meeting schedule for 2009. The FOMC doesn't always stick to the exact dates on the schedule (hence tentative), but they do always meet at least 8 times per calendar year.

Why is this schedule important to you? Because it's at these monetary policy meetings that The FOMC votes on whether to raise, lower or make no changes to The Fed Funds Target Rate, and when the Fed Funds Target Rate changes, the U.S. Prime Rate (also known as the fed, national or WSJ Prime Rate) will also change.

Here's the tentative schedule for 2009:

January 27-28, 2009

March 17, 2009

April 28-29, 2009

June 23-24, 2009

August 11, 2009

September 22, 2009

November 3-4, 2009

December 15, 2009

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Wednesday, April 30, 2008

U.S. Prime Rate Is Now 5.00%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its third, regularly scheduled monetary policy meeting of 2008, and, in accordance with the latest forecast, has just lowered its target for the Federal Funds Rate by 25 basis points (0.25 percentage point) to 2.00%. Therefore, as of today, the U.S. Prime Rate is now 5.00%. Many American banks have already issued a press release announcing that their prime lending rate has been lowered from 5.25 to 5.00%.

Here's a clip from a press release issued by the FOMC earlier today:

"The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.

Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.

Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred no change in the target for the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 2-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Atlanta, and San Francisco."

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Tuesday, March 18, 2008

U.S. Prime Rate Is Now 5.25%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its second, regularly scheduled monetary policy meeting of 2008, and has just lowered its target for the Federal Funds Rate by 75 basis points (0.75 percentage point) to 2.25%. Therefore, as of today, the U.S. Prime Rate is now 5.25%. Many American banks have already issued a press release announcing that their prime lending rate has been lowered from 6.00% to 5.25%.

Here's a clip from a press release issued by the FOMC earlier today:

"The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred less aggressive action at this meeting.

In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 2-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, and San Francisco."

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Wednesday, January 30, 2008

U.S. Prime Rate Is Now 6.00%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its first, regularly scheduled monetary policy meeting of 2008, and, in accordance with the latest forecast, the FOMC has just lowered its target for the Federal Funds Rate by 50 basis points (0.50 percentage point) to 3.00%. Therefore, as of today, the U.S. Prime Rate is now 6.00%. Many American banks have already issued a press release announcing that their prime lending rate has been lowered from 6.50% to 6.00%.

Here's a clip from a press release issued by the FOMC earlier today:

"The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred no change in the target for the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 3-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco."

Summary of The Latest Odds

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 67% (as implied by current pricing on contracts) that the FOMC will vote to lower the benchmark Federal Funds Target Rate by 25 basis points (0.25 percentage point) at the March 18TH, 2008 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

  • Current odds that the Prime Rate will be cut by 25 basis points at the March 18TH FOMC monetary policy meeting: 67% (more likely than unlikely)

  • NB: U.S. Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to federal-funds futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are constantly changing, so stay tuned for the latest odds.

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Tuesday, January 22, 2008

U.S. Prime Rate Is Now 6.50%

Earlier today, the Federal Open Market Committee (FOMC) of the Federal Reserve adjourned an emergency monetary policy meeting, and, in accordance with the latest forecast, the FOMC has just lowered its target for the Federal Funds Rate by 75 basis points (0.75 percentage point) to 3.50%. Therefore, as of today, the U.S. Prime Rate is now 6.50%. Many American banks have already issued a press release announcing that their prime lending rate has been lowered from 7.25% to 6.50%.

Here's a clip from a press release issued by the FOMC earlier today:

"The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent.

The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Eric S. Rosengren; and Kevin M. Warsh. Voting against was William Poole, who did not believe that current conditions justified policy action before the regularly scheduled meeting next week. Absent and not voting was Frederic S. Mishkin.

In a related action, the Board of Governors approved a 75-basis-point decrease in the discount rate to 4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Chicago and Minneapolis."

Despite today's intermeeting move by the Fed, the futures market is 100% certain that the Fed will cut short-term rates again on January 30TH.


Summary of The Latest Odds

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 100% (as implied by current pricing on contracts) that the FOMC will vote to lower the benchmark Federal Funds Target Rate by at least 25 basis points (0.25 percentage point) at the January 30TH, 2008 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

  • Current odds that the Prime Rate will be cut by at least 25 basis points at the January 30TH FOMC monetary policy meeting: 100% (certain)

  • NB: U.S. Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to federal-funds futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are constantly changing, so stay tuned for the latest odds.

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Tuesday, December 11, 2007

U.S. Prime Rate Is Now 7.25%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its eighth and last monetary policy meeting of the year, and, in accordance with the latest forecast, the FOMC has just lowered its target for the benchmark Federal Funds Rate by 25 basis points (0.25 percentage point) to 4.25%. Therefore, as of this afternoon, the U.S. Prime Rate is now 7.25%. Many American banks have already issued a press release announcing that their prime lending rate has been lowered from 7.50% to 7.25%.

Here's a clip from a press release issued by the FOMC a few minutes ago:

"The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/4 percent.

Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time.

Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; and Kevin M. Warsh. Voting against was Eric S. Rosengren, who preferred to lower the target for the federal funds rate by 50 basis points at this meeting.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 4-3/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and St. Louis."

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Wednesday, October 31, 2007

U.S. Prime Rate Is Now 7.50%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its seventh monetary policy meeting of the year, and, in accordance with the latest forecast, the FOMC has just lowered its target for the benchmark Federal Funds Rate by 25 basis points (0.25 percentage point) to 4.50%. Therefore, as of this afternoon, the U.S. Prime Rate is now 7.50%. Many American banks have already issued a press release announcing that their prime lending rate has been lowered from 7.75% to 7.50%, including:

  • The Bank of America and LaSalle Bank*
  • Wells Fargo*
  • Wachovia*
  • KeyCorp*

Here's a clip from a press release issued by the FOMC a few minutes ago:

"The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/2 percent.

Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time.

Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Eric S. Rosengren; and Kevin M. Warsh. Voting against was Thomas M. Hoenig, who preferred no change in the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 5 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Richmond, Atlanta, Chicago, St. Louis, and San Francisco."

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Tuesday, September 18, 2007

U.S. Prime Rate Is Now 7.75%

Ladies and gents: the cost of borrowing just got cheaper. In accordance with the latest forecast, the Federal Open Market Committee (FOMC) of The Federal Reserve has just lowered its target for the benchmark Federal Funds Rate by 50 basis points (0.50 percentage point) to 4.75%. Therefore, as of this afternoon, the U.S. Prime Rate is now 7.75%. Many American banks have already issued a press release announcing that their prime lending rate has been lowered from 8.25% to 7.75%, including:

  • The Bank of America*
  • Wells Fargo*
  • KeyCorp*
  • Wachovia*

Here's a clip from a press release issued by the Fed moments ago:

"The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent.

Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.

Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Eric Rosengren; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and San Francisco"

Today's 50 basis point cut comes as a surprise to many, as a 25 basis point cut would have been more prudent in the eyes of many economists. As noted in the above FOMC statement, the group is still worried about inflation, and crude for future delivery is right now trading at record highs ($81.51 per barrel.) Nevertheless, there was consensus among voting members of the FOMC today: the vote for a 0.50 percentage point cut was unanimous.

Wall Street is happy with today's move: right now, the Dow Jones Industrial Average (DJIA) is up by more than 289 points on the day. If you have a variable rate credit card, or a variable-rate loan tied to the Prime Rate, then you have reason to smile as well, as you can expect your interest rate to come down soon.

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Tuesday, August 07, 2007

Fifth FOMC Meeting of 2007 Adjourned: The U.S. Prime Rate Stays at 8.25%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its fifth monetary policy meeting of 2007, and, in keeping with the latest forecast, the FOMC has voted to leave short-term interest rates at their current level. Therefore, the benchmark Federal Funds Target Rate will remain at 5.25%, and the Wall Street Journal® Prime Rate (also known as the U.S. or Fed Prime Rate) will remain at the current 8.25%.

Here's a clip from the press release that was issued by the FOMC earlier this afternoon:

"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Economic growth was moderate during the first half of the year. Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy.

Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.

Although the downside risks to growth have increased somewhat, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Michael H. Moskow; William Poole; Eric Rosengren; and Kevin M. Warsh."


The next FOMC monetary policy meeting will occur on September 18, 2007.

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Thursday, June 28, 2007

Fourth FOMC Meeting of 2007 Adjourned: The U.S. Prime Rate Holds at 8.25%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its fourth monetary policy meeting of 2007, and, in keeping with the latest forecast, the FOMC has voted to leave short-term interest rates at their current level. Therefore, the benchmark Federal Funds Target Rate will remain at 5.25%, and the Wall Street Journal® Prime Rate (also known as the U.S. or national Prime Rate) will remain at the current 8.25%.

Here's a clip from the press release that was issued by the FOMC earlier this afternoon:

"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector. The economy seems likely to continue to expand at a moderate pace over coming quarters.

Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh."

The Latest Odds

As of right now, the investors who trade in Fed Funds Futures have odds at 15% (according to current pricing on contracts) that the FOMC will opt to lower the benchmark Federal Funds Target Rate by 25 basis points at the December 11TH, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the August 7TH, September 18TH and October 31ST FOMC monetary policy meetings.

  • Current odds that the Prime Rate will be cut to 8.00% after the December 11TH, 2007 FOMC monetary policy meeting: 15% (very unlikely)

  • NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Federal Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are continually changing, so stay tuned for the latest odds.

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Friday, June 01, 2007

FOMC Meeting Schedule (Tentative) for 2008

Earlier today, The Federal Open Market Committee (FOMC) released its tentative monetary policy meeting schedule for 2008. The FOMC doesn't always stick to the exact dates on the schedule (hence tentative), but they do always meet at least 8 times per calendar year.

Why is this schedule important to you? Because it's at these monetary policy meetings that The FOMC votes on whether to raise, lower or make no changes to The Fed Funds Target Rate, and when the Fed Funds Target Rate changes, the U.S. Prime Rate (also known as the fed, national or WSJ Prime Rate) will also change.

Here's the tentative schedule for 2008:

January 29-30, 2008

March 18, 2008

April 29-30, 2008

June 24-25, 2008

August 5, 2008

September 16, 2008

October 28-29, 2008

December 16, 2008

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Wednesday, May 09, 2007

Third FOMC Meeting of 2007 Adjourned: The Prime Rate Holds at 8.25%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its third monetary policy meeting of 2007, and, in keeping with the latest forecast, the FOMC has voted to leave short-term interest rates at their current level. Therefore, the benchmark Federal Funds Target Rate will remain at 5.25%, and the Wall Street Journal® Prime Rate (also known as the U.S. or Fed Prime Rate) will remain at the current 8.25%.

Here's a clip from the press release that was issued by the FOMC earlier this afternoon:

"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Economic growth slowed in the first part of this year and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to expand at a moderate pace over coming quarters.

Core inflation remains somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh."

The Latest Odds

As of right now, Fed Funds Futures traders have odds at around 15% (according to current pricing on contracts) that the FOMC will choose to lower the benchmark Federal Funds Target Rate by 25 basis points at the August 7TH, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the June 28TH, 2007 FOMC monetary policy meeting.

  • Current odds that the Prime Rate will be cut to 8.00% after the August 7TH, 2007 FOMC monetary policy meeting: 15% (very unlikely)

  • NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are continually changing, so stay tuned for the latest odds. Odds may experience a significant shift on the release of the following economic reports:

  • Friday, May 11, 2007: The Labor Department releases the Producer Price Index (PPI) report for March, 2007.

  • Tuesday, May 15, 2007: The Labor Department releases the Consumer Price Index (CPI) report for March, 2007.

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Friday, May 04, 2007

Probability of A Rate Cut for The August 7, 2007 FOMC Monetary Policy Meeting Now At 17%

The Federal Open Market Committee (FOMC) will convene the next monetary policy meeting next week (Wednesday, May 9, 2007) and it is a very safe bet that the Fed will opt to leave the benchmark Fed Funds Target Rate at 5.25%, which means that Prime Rate will remain at 8.25%.

The Fed is also very likely to leave interest rates at their current level after the June 28TH monetary policy meeting.

As for the future beyond June of this year, the fed funds futures market -- the best predictor of where interest rates are headed -- is currently pricing in odds at near 100% that the Fed will lower rates by 25 basis points (0.25 percentage point) by the time the December 11TH, 2007 monetary policy meeting is upon us (it's important to note that predictions based on the fed funds futures market are most accurate 45 days into the future, due to the numerous economic variables involved.)

Influencing the fed funds futures market this week were some encouraging reports on U.S. manufacturing and productivity, but the week ended on a somewhat down note with the Labor Department's release of the jobs figures for April. Economists were expecting the new payrolls figure to be at or around 100,000, but the U.S. economy added 88,000 jobs last month. Furthermore, the unemployment rate rose from 4.4% to 4.5%, and the new payrolls figures for both March and February were revised downward.


The Latest Odds

As of right now, Fed Funds Futures traders have odds at around 17% (according to current pricing on contracts) that the FOMC will opt to lower the benchmark Federal Funds Target Rate by 25 basis points at the August 7TH, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the May 9TH and June 28TH, 2007 FOMC monetary policy meetings.

  • Current odds that the Prime Rate will be cut to 8.00% after the August 7TH, 2007 FOMC monetary policy meeting: 17% (very unlikely)

  • NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are continually changing, so stay tuned for the latest odds. Odds may experience a significant shift on the release of the following economic reports:

  • Friday, May 11, 2007: The Labor Department releases the Producer Price Index (PPI) report for March, 2007.

  • Tuesday, May 15, 2007: The Labor Department releases the Consumer Price Index (CPI) report for March, 2007.

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Wednesday, April 11, 2007

Probability of A Rate Cut for The August 7, 2007 FOMC Monetary Policy Meeting Now At 25%

Earlier today, the Federal Reserve released the minutes from the March 21, 2007 Federal Open Market Committee (FOMC) monetary policy meeting. It's worth noting that the Fed hasn't ruled out the possibility of a rate increase at some point down the road, if inflation doesn't abate as expected. Here's a clip from the minutes:

"...The Committee agreed that further policy firming might prove necessary to foster lower inflation, but in light of the increased uncertainty about the outlook for both growth and inflation, the Committee also agreed that the statement should no longer cite only the possibility of further firming. Instead, the statement should indicate that future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information..."
Bottom line: the Fed is likely to remain in wait-and-see mode for some months.

Interest-rate futures traders reacted to the Fed minutes, lowering their expectations that the FOMC will elect to cut short-term rates later this year.

The Latest Odds

As of right now, Fed Funds Futures traders have odds at around 25% (according to current pricing on contracts) that the FOMC will elect to lower the benchmark Federal Funds Target Rate by 25 basis points at the August 7TH, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the May 9TH FOMC monetary policy meeting.

  • Current odds that the Prime Rate will be cut to 8.00% after the June 28TH, 2007 FOMC monetary policy meeting: 8% (very unlikely)

  • Current odds that the Prime Rate will be cut to 8.00% after the August 7TH, 2007 FOMC monetary policy meeting: 25% (unlikely)

  • NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are continually changing, so stay tuned for the latest odds. Odds may experience a significant shift on the release of the following economic reports:

  • Friday, April 13, 2007: The Labor Department releases the Producer Price Index (PPI) report for March, 2007.

  • Tuesday, April 17, 2007: The Labor Department releases the Consumer Price Index (CPI) report for March, 2007.

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Friday, April 06, 2007

Probability of A Rate Cut for The June 28, 2007 FOMC Monetary Policy Meeting Now At 8%

Earlier today, the Labor Department released the Employment Situation report for March, 2007, and the numbers for March are strong. According to the report, 180,000 new jobs were added to the U.S. workforce last month (Wall Street was expecting 135,000 new jobs), and the unemployment rate fell from 4.5% to 4.4%.

The data in the March jobs report are a strong indication that the U.S. economy is doing quite well, which in turn means that the Fed is now less likely to lower short-term interest rates later this year.

Bottom line: The U.S. Prime Rate is now likely to remain at the current 8.25% right through the summer, and possibly into the fall as well.

The Latest Odds

As of right now, Fed Funds Futures traders have odds at around 8% (according to current pricing on contracts) that the FOMC will elect to lower the benchmark Federal Funds Target Rate by 25 basis points at the June 28TH, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the May 9TH FOMC monetary policy meeting.

  • Current odds that the Prime Rate will be cut to 8.00% after the June 28TH, 2007 FOMC monetary policy meeting: 8% (very unlikely)

  • Current odds that the Prime Rate will be cut to 8.00% after the August 7TH, 2007 FOMC monetary policy meeting: 35% (unlikely)

  • NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are continually changing, so stay tuned for the latest odds. Odds may experience a significant shift on the release of the following economic reports:

  • Friday, April 13, 2007: The Labor Department releases the Producer Price Index (PPI) report for March, 2007.

  • Tuesday, April 17, 2007: The Labor Department releases the Consumer Price Index (CPI) report for March, 2007.

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Friday, March 30, 2007

Probability of A Rate Cut for The June 28, 2007 FOMC Monetary Policy Meeting Now At 28%

The core personal consumption expenditures (PCE) price index -- The Fed's preferred inflation gauge -- rose by 2.4% over the last 12 months. The Fed would like to see inflation somewhere between 1% and 2%, so the latest inflation data make a rate cut for this year less likely. Bottom line: the Fed most likely won't even consider cutting short-term interest rates while inflation continues to hover above the 2% mark.

Placing additional inflation pressure on the U.S. economy: the price on a barrel of crude oil for future delivery ended the week up at $65.87.

Here's a clip from testimony made by Fed chief Ben Bernanke before Congress 2 days ago:

"...Core inflation, which is a better measure of the underlying inflation trend than overall inflation, seems likely to moderate gradually over time. Despite recent increases in the price of crude oil, energy prices are below last year’s peak. If energy prices remain near current levels, greater stability in the costs of producing non-energy goods and services will reduce pressure on core inflation over time. Of course, the prices of oil and other commodities are very difficult to predict, and they remain a source of considerable uncertainty in the inflation outlook..."

The Latest Odds

As of right now, Fed Funds Futures traders have odds at around 28% (according to current pricing on contracts) that the FOMC will elect to lower the benchmark Fed Funds Target Rate by 25 basis points at the June 28TH, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the May 9TH FOMC monetary policy meeting.

  • Current odds that the Prime Rate will be cut to 8.00% after the June 28TH, 2007 FOMC monetary policy meeting: 28% (unlikely)

  • NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are continually changing, so stay tuned for the latest odds. Odds may experience a significant shift on the release of the following economic report:

  • Friday, April 6, 2007: The Labor Department releases the Employment Situation report for March, 2007.

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Wednesday, March 21, 2007

Second FOMC Meeting of 2007 Adjourned: The Prime Rate Remains at 8.25%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned their second monetary policy meeting of 2007, and, in keeping with the latest forecast, the FOMC has voted to leave short-term interest rates at their current level. Therefore, the benchmark Federal Funds Target Rate will remain at 5.25%, and the Wall Street Journal® Prime Rate (also known as the U.S. or national Prime Rate) will remain at the current 8.25%.

Here's a clip from the press release that was issued by the FOMC earlier this afternoon:

"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Recent indicators have been mixed and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters.

Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh."

The Latest Odds

As of right now, Fed Funds Futures traders have odds at around 44% (according to current pricing on contracts) that the FOMC will elect to lower the benchmark Fed Funds Target Rate by 25 basis points at the June 28TH, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the May 9TH FOMC monetary policy meeting.

  • Current odds that the Prime Rate will be cut to 8.00% after the June 28TH, 2007 FOMC monetary policy meeting: 44% (unlikely)

  • NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are continually changing, so stay tuned for the latest odds. Odds may experience a significant shift on the release of the following economic reports:

  • Friday, March 23, 2007: The National Association of Realtors® releases the Existing Home Sales report for February, 2007.

  • Monday, March 26, 2007: The Commerce Department releases the New Home Sales report for February, 2007.

  • Thursday, March 29, 2007: The Commerce Department releases the final Gross Domestic Product report for Q4, 2006.

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Wednesday, January 31, 2007

First FOMC Meeting of 2007 Adjourned: The Prime Rate Remains at 8.25%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned the first monetary policy meeting of 2007, and, in keeping with the latest forecast, the FOMC elected to leave short-term interest rates at their current level. Therefore, the benchmark Federal Funds Target Rate will remain at 5.25%, and the Wall Street Journal® Prime Rate (also known as the U.S. or national Prime Rate) will remain at the current 8.25%.

Here's a clip from the press release that was issued by the FOMC earlier this afternoon:

"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market. Overall, the economy seems likely to expand at a moderate pace over coming quarters.

Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time. However, the high level of resource utilization has the potential to sustain inflation pressures.

The Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh."

The Latest Odds

As of right now, Fed Funds Futures traders have odds at around 4% (according to current pricing on contracts) that the FOMC will vote to lower the benchmark Fed Funds Target Rate by 25 basis points at the June 28TH, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Forecast:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the March 21ST and May 9TH FOMC monetary policy meetings.

  • Current odds that the Prime Rate will be cut to
    8.00% on June 28TH, 2007: 4% (very unlikely)

  • NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are continually changing, so stay tuned for the latest odds. Odds may experience a significant shift on the release of the following economic reports:

  • Friday, February 2, 2007: The Labor Department releases the Employment Situation report for January, 2007.

  • Friday, February 16, 2007: Labor Department releases the Producer Price Index (PPI) report for January, 2007.

  • Wednesday, February 21, 2007: Labor Department releases the Consumer Price Index (CPI) report for January, 2007.

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Friday, January 26, 2007

Probability of A Rate Cut for The June 28, 2007 FOMC Monetary Policy Meeting Now At 2%

The Federal Open Market Committee (FOMC) is set to convene their first monetary policy meeting of 2007 on Tuesday; it's a two-day meeting, so they'll announce their decision about interest rates on Wednesday (January 31.)

What do we know right now? We know that the Fed won't tamper with interest rates next week, so, after next week's FOMC meeting, the national Prime Rate will remain at the current 8.25%. At this point, it is also very likely that the Fed will leave interest rates alone at the second FOMC meeting of 2007, which is set to take place on March 21ST.

The probability that the Fed will cut rates at the end of June dropped to 2% today after investors had a chance to digest reports on housing and durable goods orders:

  • The data in the December Existing Home Sales report (released yesterday) were mixed: though inventories were lower and prices showed signs of stabilizing, on a month-to-month basis, existing homes sales declined by 0.8%. Furthermore, on a year-to-year basis (2005-2006), existing home sales declined by 8.4% (2005 was the stronger year on record for existing home sales @ 7,075,000.)

  • The December New Homes Sales numbers were quite positive, with a month-to-month increase of around 4.8%, and inventories dropped from 549,000 homes to 539,000. However, the positive month-to-month numbers were tempered by the year-to-year stats: between 2005 and 2006, new home sales fell by 17.3%.

  • Good news from the manufacturing sector: December Durable Goods Orders were up by 3.1% last month. However, this news was tempered by demoralizing news from the auto industry: Ford Motor recently reported that 2006 was the worst year on record for the company -- a loss of $12.7 billion (that's right: billion.) 2006 was also a bad year for both DaimlerChrysler and General Motors: both companies are expected to report a significant loss for '06.

The Fed will cut interest rates later this year only if the U.S. economy needs the boost. What's the prognosis for the U.S. economy? Judging by the money on Wall Street, it's not too bad. When investors are feeling good about the economy's future, they tend to invest less in U.S. treasuries and more in stocks. As demand for government notes declines, the yield on those notes rises. Today, the yield on the benchmark 10-year treasury note rose to 4.879%. About two months ago -- on November 24, 2006 -- the yield on the ten-year note was 4.548.

The Latest Odds

As of right now, Fed Funds Futures traders have odds at around 2% (according to current pricing on contracts) that the FOMC will vote to lower the benchmark Federal Funds Target Rate by 25 basis points at the June 28TH, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Predictions:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the January 31ST and March 21ST FOMC monetary policy meetings.

  • Current odds that the Prime Rate will be cut to
    8.00% on June 28TH, 2007: 2% (very unlikely)

  • NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are continually changing, so stay tuned to this blog for the latest odds.

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Thursday, January 18, 2007

Probability of A Rate Cut for The June 28, 2007 FOMC Monetary Policy Meeting Now At 12%

If you've been holding your breath in anticipation of a rate cut later this year, then you better have great health insurance. The likelihood of a rate cut for this year has been diminishing steadily over the past few months. And now, based on the latest economic numbers, the Fed is even less likely to lower short-term interest rates later this year.

There were some surprises in this week's economic reports:

  • Though consumer prices rose at a pace that economists were expecting last month, wholesale prices increased at a pace that was significantly higher than prognosticators were predicting. Bad news from the Fed's point of view, as many Federal Reserve officials have been and are still expressing concern about inflation. A (very) small minority of economists and investors are now predicting that the Fed may actually raise short-term interest rates by 25 basis points by the end of March in an effort to contain the inflation threat.

  • With plenty of new and preowned homes available for sale right now, economists were expecting around 1,590,000 housing starts last month. The actual figure was 1,642,000.

The Latest Odds

As of right now, Fed Funds Futures traders have odds at 12% (according to current pricing on contracts) that the Federal Open Market Committee (FOMC) will vote to lower the benchmark Federal Funds Target Rate by 25 basis points at the June 28TH, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Predictions:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the January 31ST and March 21ST FOMC monetary policy meetings.

  • Current odds that the Prime Rate will be cut to
    8.00% on June 28TH, 2007: 12% (unlikely)

  • NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are continually changing, so stay tuned to this blog for the latest odds. Odds may experience a significant shift on the release of the following economic reports:

  • Thursday, January 25, 2007: The National Association of Realtors releases the Existing Home Sales report for December, 2006.

  • Friday, January 26, 2007: The Commerce Department releases the New Home Sales report for December, 2006.

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Friday, January 05, 2007

Rate Cut for The March 21, 2007 FOMC Monetary Policy Meeting Now Very Unlikely On Release of December Jobs Report

Earlier today, the Department of Labor's Bureau of Labor Statistics released the Employment Situation Report for December, 2006. The December jobs report can be summed up in one word: strong. According to the Labor Department, a healthy 167,000 new jobs were added to U.S. payrolls last month (Wall Street forecasters were expecting around 100,000 new jobs), and the unemployment rate held steady at an economy-friendly 4.5%.

2006 was a good year from a jobs perspective: for the year, the unemployment rate dropped from 4.9% to 4.5%.

With the all-important U.S. employment situation looking favorable, the Fed is now less likely to lower interest rates before mid-2007.


The Latest Odds

As of right now, Fed Funds Futures traders have odds at around 6% (according to current pricing on contracts) that the Federal Open Market Committee (FOMC) will opt to lower the benchmark Federal Funds Target Rate by 25 basis points at the March 21ST, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Predictions:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the January 31ST FOMC monetary policy meeting.

  • Current odds that the Prime Rate will be cut to
    8.00% on March 21ST, 2007: 6% (very unlikely)

  • Current odds that the Prime Rate will be cut to
    8.00% by June 28TH, 2007: 52% (on the fence)

  • NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are continually changing, so stay tuned to this weblog for the latest odds.

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Wednesday, January 03, 2007

FOMC Minutes Released: Fed Still Concerned About Inflation

Earlier today, the Federal Reserve released the minutes from the December 12 FOMC monetary policy meeting: Despite clear sings that inflation is slowing, Fed officials were still quite concerned about inflation at last month's meeting.

The following are clips from the minutes released today:

"...In their discussion of the economic situation and outlook, meeting participants noted that their assessments of the medium-term prospects for economic growth and inflation were little changed from the previous meeting..."

"...In their discussion of the major sectors of the economy, participants noted that developments in the housing market continued to weigh heavily on economic activity. Housing starts and permits for new construction had dropped sharply in October, and contacts in the building sector reported that construction firms were continuing to cancel options on land purchases. However, there were some indications that home sales might be starting to stabilize, aided by a marked slowing in the rate of increase of house prices and a decline in mortgage rates in recent months. Several participants also noted that a range of non-price incentives and concessions were being offered by construction firms to bolster sales. But even if home purchases had begun to level off, residential investment was likely to fall further in coming quarters as homebuilders sought to reduce their backlogs of unsold homes..."

"...All meeting participants remained concerned about the outlook for inflation. Although readings on core inflation had improved modestly since the spring, nearly all participants viewed core inflation as uncomfortably high and stressed the importance of further moderation. Participants expected core inflation to edge lower over time, in part as the pass-through of higher prices for energy and other commodities ran its course and as the moderate growth in aggregate demand likely led to a modest easing of pressures on resources. Some participants also highlighted the impact that movements in the prices of individual components of the price index, such as owners' equivalent rent and medical costs, could have on near-term readings on core inflation. More generally, participants stressed there was considerable uncertainty as to the probable pace and extent of the moderation in core inflation and that the risks around this desired downward path remained to the upside. Moreover, participants expressed concern that a failure of inflation to moderate as expected could entail significant costs if an upward drift in inflation expectations ensued..."

"... The outlook for economic growth and inflation was thought to have changed relatively little since the previous meeting..."

The Latest Odds

Of course, investors reacted to this week's housing news. As of right now, the folks who trade in Federal Funds Futures have odds at around 16% (according to current pricing on contracts) that the Federal Open Market Committee (FOMC) will opt to lower the benchmark Federal Funds Target Rate by 25 basis points at the March 21ST, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Predictions:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the January 31ST FOMC monetary policy meeting.

  • Current odds that the Prime Rate will be cut to 8.00% at the
    March 21ST, 2007 FOMC monetary policy meeting: 16% (unlikely)

  • NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are continually changing, so stay tuned to this blog for the latest odds. Odds may experience a significant shift on the release of the following economic report:

  • Friday, January 5, 2007: The Labor Department releases the Employment Situation report for December, 2006.

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Friday, December 29, 2006

Probability of A Rate Cut for The March 21, 2007 FOMC Monetary Policy Meeting Drops to 10% On Encouraging Housing Data

The current national Prime Rate (WSJ Prime Rate) is 8.25%: get used to it!

Bottom line: the Fed will only lower interest rates next year if the U.S. economy needs a helping hand.

Right now, the nation's housing sector is arguably the biggest cause for concern. But this week's data related to the housing market was encouraging: both new and existing home sales showed improvement in November. Of course, it's really too soon to celebrate, because when the November housing numbers are compared to the numbers from a year ago, it's still quite clear that a lot more buying/selling activity will have to happen in the coming months before real estate agents can stop holding their collective breath.

In light of the latest housing numbers, the Fed is now less likely to lower interest rates before the third quarter of 2007. Contributing to the decreased likelihood of a rate cut for early 2007: The Conference Board's Consumer Confidence Index jumped from 102.9 last month to 109.0 for December '06.

  • Good news for home shoppers and investors: for both new and existing homes, inventories -- the number of homes on the market -- are still high, and prices are quite stagnant. Furthermore, foreclosures are likely to rise in the new year (it's really important to understand how Adjustable Rate Mortgages (ARM's) and Payment-Option Mortgages work!)

The Latest Odds

Of course, investors reacted to this week's housing news. As of right now, the folks who trade in Federal Funds Futures have odds at around 10% (according to current pricing on contracts) that the Federal Open Market Committee (FOMC) will elect to lower the benchmark Federal Funds Target Rate by 25 basis points at the March 21ST, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Predictions:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the January 31ST FOMC monetary policy meeting.

  • Current odds that the Prime Rate will be cut to 8.00% at the
    March 21ST, 2007 FOMC monetary policy meeting: 10% (very unlikely)

  • NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Federal Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Federal Funds Target Rate -- are continually changing, so stay tuned to this blog for the latest odds.

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Friday, December 22, 2006

Probability of A Rate Cut for The March 21, 2007 FOMC Monetary Policy Meeting Drops to 17%

If you're happy with the current U.S. Prime Rate level -- 8.25% -- then we have good news for you: it's not budging any time soon.

A number of key economic reports were released by the government this past week, including Housing Starts, PPI, GDP Final, Leading Economic Indicators, Durable Goods Orders, Consumer Sentiment, Consumer Spending, and the Philadelphia Fed's Business Outlook Survey. The economic picture is still mixed, which is nothing to get excited about, but, on the positive side, no one is predicting economic disaster for 2007: many economists and academics are forecasting that the U.S. economy will expand by about 3.0% next year. Of course, moderate growth is good news from a price stability perspective, and it should also translate to short-term interest rate stability.

Bottom line: if the Fed does decide to cut interest rates next year, it's not likely to happen before the third quarter of 2007.

Right now, the biggest drags on the U.S. economy are manufacturing and housing:

  • Bad news out this week, from a manufacturing perspective : the folks at Toyota are planning to produce an astonishing 9,420,000 vehicles in 2007; General Motors may end up as the global #2 auto manufacturer if the top brass at Toyota realize their 2007 goal.

  • Bad news out this week, from a housing perspective: According to the final, third-quarter GDP report released yesterday, residential fixed investment fell by 18.7% during Q3, 2006; in the preliminary GDP report released last month, the figure was reported at 18.0%. Furthermore, the Center for Responsible Lending recently forecast that approximately 1 out of every 5 subprime mortgages originated during the past 2 years will end up in foreclosure, and losses for subprime mortgage holders may climb as high as $164 billion over the next several years -- mainly in the form of lost home equity.

The Latest Odds

Of course, investors have reacted to this week's news and economic reports. As of right now, the folks who trade in Federal Funds Futures have odds at around 17% (according to current pricing on contracts) that the Federal Open Market Committee (FOMC) will elect to lower the benchmark Federal Funds Target Rate by 25 basis points at the March 21ST, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Predictions:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the January 31ST FOMC monetary policy meeting.

  • Current odds that the Prime Rate will be cut to 8.00% at the
    March 21ST, 2007 FOMC monetary policy meeting: 17% (unlikely)

  • NB: Prime Rate = (The Federal Funds Target Rate + 3)

The odds related to Federal Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Federal Funds Target Rate -- are continually changing, so stay tuned for the latest odds. Odds may experience a significant shift after the release of the following economic reports:

  • Wednesday, December 27, 2006: The Commerce Department releases their report on November New Home Sales.

  • Wednesday, December 28, 2006: The National Association of Realtors® releases the November Existing Home Sales report.

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Tuesday, December 12, 2006

Fed Leaves Short-Term Rates Alone: Prime Rate Remains at 8.25%

The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned the eighth and last monetary policy meeting of 2006, and, in keeping with the latest odds and predictions, the FOMC voted to leave short-term interest rates at their current level. Therefore, the benchmark Federal Funds Target Rate will remain at 5.25%, and the Wall Street Journal® Prime Rate (also known as the U.S. or Fed Prime Rate) will remain at the current 8.25%.

The Fed has voted to keep short-term rates unchanged four times in a row now, and, for the fourth FOMC meeting in a row, Fifth District Federal Reserve Bank President Dr. Jeffrey M. Lacker was the sole dissenter: Dr. Lacker once again voted for a 25 basis point (0.25 percentage point) increase for the Fed Funds Target Rate.

Here's a clip from the press release that was issued by the FOMC earlier this afternoon:

"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Economic growth has slowed over the course of the year, partly reflecting a substantial cooling of the housing market. Although recent indicators have been mixed, the economy seems likely to expand at a moderate pace on balance over coming quarters.

Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; William Poole; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting."

The Latest Odds: What's Ahead for The Prime Rate?

As of right now, Fed Funds Futures traders have odds at around 28% (according to current pricing on contracts) that the FOMC will elect to lower the Federal Funds Target Rate by 25 basis points at the March 21ST, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Predictions:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the January 31ST FOMC monetary policy meeting.

  • Current odds that the Prime Rate will be cut to
    8.00% on March 21ST, 2007: 28% (not likely)

  • NB: Prime Rate = (The Fed Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts -- widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate -- are continually changing, so stay tuned to this blog for the latest odds.

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Wednesday, October 25, 2006

Fed Votes To Leave Interest Rates Alone: Prime Rate Remains at 8.25%

In line with the latest predictions, the Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned their seventh monetary policy meeting of 2006, and elected to leave interest rates at their present level. Therefore, the benchmark Federal Funds Target Rate will remain at 5.25%, and the Wall Street Journal® Prime Rate (the nationwide Prime Rate) will remain at the current 8.25%.

The Fed has voted to leave interest rates unchanged 3 times in a row now, and Fifth District Federal Reserve Bank President Dr. Jeffrey M. Lacker has dissented 3 times in a row as well, voting once again for a 25 basis point (0.25 percentage point) increase for the Fed Funds Target Rate. A suitable moniker for Dr. Lacker: Jeffrey "Inflation Hawk" Lacker.


Prime Rate Forecast: Predictions for the Prime Rate

The Fed is still counting on the cooling economy to help douse the flames of inflation moving forward, so at the December 12 monetary policy meeting -- the last of 2006 -- the group is likely to repeat today's inaction and leave interest rates at their current level.

More evidence that the U.S. economy is waning came in today. The National Association of Realtors® released the September, 2006 Existing Home Sales report earlier this morning: existing home sales fell by 1.9% to 6,180,000 units last month. That's 14.2% lower than the September, 2005 level.

As of right now, the investors who trade in Fed Funds Futures have odds at around 10% (according to current pricing on contracts) that the FOMC will elect to raise the benchmark Fed Funds Target Rate by 25 basis points at the January 31ST, 2007 monetary policy meeting.


Summary of the Latest Prime Rate Predictions:

  • In all likelihood, the Prime Rate will remain at the current 8.25% after the December 12TH FOMC monetary policy meeting.

  • Current odds that the Prime Rate will rise
    to 8.50% on January 31ST, 2007: 10% (unlikely)

  • NB: Prime Rate = (The Fed Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts--widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate--are continually changing, so stay tuned to this blog for the latest odds. Odds may experience a significant shift when the Fed releases the minutes from today's policy meeting on November 14TH. (TIP: type the easy-to-remember URL www.PrimeRatePredictions.com into your web browser as a shortcut to this blog, or, if you prefer, www.PrimeRateForecast.com).


Here's a clip from the press release that was issued by the FOMC this afternoon:

"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Economic growth has slowed over the course of the year, partly reflecting a cooling of the housing market. Going forward, the economy seems likely to expand at a moderate pace.

Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; William Poole; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting."

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Wednesday, September 20, 2006

No Action on Interest Rates Today: Prime Rate Remains at 8.25%

In keeping with predictions, the Federal Open Market Committee (FOMC) of the Federal Reserve met today and decided to leave interest rates at their present level. Therefore, the benchmark Federal Funds Target Rate will remain at 5.25%, and the Wall Street Journal® Prime Rate (the U.S. Prime Rate) will remain at the current 8.25%.

Once again, today's FOMC vote wasn't unanimous: as he did at the August 8, 2006 FOMC monetary policy meeting, Fifth District Federal Reserve Bank President Dr. Jeffrey M. Lacker did not vote with the pack, instead voting for a 25 basis point increase for the Fed Funds Target Rate today.


Prime Rate Forecast: What's Ahead for the Prime Rate?

The one-two punch of a cooling U.S. economy and easing crude oil prices should keep inflation on the ropes moving forward, so most experts are predicting that the Fed will leave interest rates at their present level for the rest of 2006. In fact, some economists and academics are predicting that the Fed will start to bring interest rates down as early as Q1, 2007.

As of right now, the investors who trade in Fed Funds Futures have odds at about 6% (according to current pricing on contracts) that the FOMC will elect to raise the benchmark Fed Funds Target Rate by 25 basis points at the October 24TH monetary policy meeting.


Simple Summary of the latest Prime Rate Predictions:

  • Current odds that the Prime Rate will rise
    to 8.50% on October 24TH, 2006: 6%

  • NB: Prime Rate = (The Fed Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts--widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate--are continually changing, so stay tuned for the latest odds (TIP: type the URL www.PrimeRatePredictions.com into your web browser as a shortcut to this blog, or, if you prefer, www.PrimeRateForecast.com).


Here's a clip from the press release that was issued by the FOMC this afternoon:

"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.

Readings on core inflation have been elevated, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting."

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Tuesday, August 08, 2006

FOMC Elects to Pause Raising Rates: Prime Rate Remains at 8.25%

Looks like the most recent predictions were right on the mark: the Federal Open Market Committee (FOMC) of the Federal Reserve met today and decided to leave interest rates alone. That means that the benchmark Federal Funds Target Rate will remain at 5.25%, and the Wall Street Journal® Prime Rate (the national Prime Rate) will remain at 8.25%.

Today's FOMC vote wasn't unanimous: Fifth District Federal Reserve Bank President Jeffrey M. Lacker wanted another 25 basis point hike for the Fed Funds Target Rate today.


Prime Rate Prediction: What's Ahead for the Prime Rate?

The Fed is still worried about inflation, but the FOMC elected to leave rates alone. Why? Yes, the Fed is very keen on controlling inflation, but they also don't want to raise interest rates at a pace that's going to snuff out economic growth and push the U.S. economy into that dark closet called recession. This pause will give the FOMC a chance to see if the 17 straight rate hikes instituted since the summer of 2004 were enough to get inflation under control. It's kinda' like cooking scrambled eggs: you want to turn off the heat before the eggs are done and let the heat from the pan finish the cooking job; keep the heat on for too long and you end up burning the eggs.

Many economists and investors feel that today's Fed action was a "pause" as opposed to a termination of the rate-raising regimen that began 2 years ago. If the economic reports (GDP, CPI, PPI, Employment Situation, etc.) released between now and the next FOMC meeting indicate that inflation still needs taming, then it's a pretty safe bet that the Fed will react by raising rates by at least 25 basis points on September 20TH. If inflation looks really bad then we may be in for a 50 basis point hike next month.

As of right now, the investors who trade in Fed Funds Futures have odds at about 33% (according to current pricing on contracts) that the FOMC will elect to raise the benchmark Fed Funds Target Rate by 25 basis points to 5.50% at the September 20TH, 2006 monetary policy meeting.


Simple Summary of the latest Prime Rate Predictions:

  • Current odds that the Prime Rate will rise
    to 8.50% on September 20TH, 2006: 33%

  • Current odds that the Prime Rate will rise
    to 8.50% by the end of the year: 53%

  • NB: Prime Rate = (The Fed Funds Target Rate + 3)

The odds related to Fed Funds Futures contracts--widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate--are continually changing, so stay tuned to this blog for the latest odds (TIP: type the URL www.PrimeRatePredictions.com into your web browser as a shortcut to this blog, or, if you prefer, www.PrimeRateForecast.com).


Here's a clip from the press release that was issued by the FOMC this afternoon:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

Readings on core inflation have been elevated in recent months, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting."

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Thursday, July 20, 2006

FOMC Meeting Schedule (Tentative) for 2007

Earlier today, The Federal Open Market Committee (FOMC) released its tentative monetary policy meeting schedule for 2007. The FOMC doesn't always stick to the exact dates on the schedule (hence tentative), but they do always meet at least 8 times per calendar year.

Why is this schedule important to you? Because it is at these monetary policy meetings that The FOMC votes on whether to raise, lower or make no changes to The Fed Funds Target Rate, and when the Fed Funds Target Rate changes, The Wall Street Journal® Prime Rate (also known as the fed, national or U.S. Prime Rate) will also change.

Here's the tentative schedule for 2007:

January 30-31, 2007

March 20-21, 2007

May 9, 2007

June 27-28, 2007

August 7, 2007

September 18, 2007

October 30-31, 2007

December 11, 2007

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Thursday, June 29, 2006

Prime Rate Increase Today: The Prime Rate Is Now 8.25%

Ladies and gents: borrowing just got more expensive. In accordance with all the reliable interest rate predictions and forecasts, the Federal Open Market Committee (FOMC) of The Federal Reserve has just raised its target for the benchmark Federal Funds Rate by 25 basis points (0.25 percentage point) to 5.25%. Therefore, as of this afternoon, the de facto Wall Street Journal® Prime Rate (the U.S. Prime Rate) is now 8.25%. Many American banks have already issued a press release announcing that their prime lending rate has increased from 8.00% to 8.25%, including:

  • The Bank of America*
  • HSBC*
  • Northern Trust*
  • PNC*
  • Harris N.A.*
  • Dollar Bank*
  • National City*
  • Comerica Bank*
  • Wells Fargo*
  • KeyCorp*
  • U.S. Bancorp*
  • M&T Bank*
  • SunTrust*
  • Wachovia*
  • Sky Financial*

The Fed has raised it's target for the Fed Funds Rate by a quarter-point 17 times in a row since June, 2004, and we may be in for another quarter-point increase after the FOMC adjourns their monetary policy meeting on August 8, if, at that time, the Fed isn't comfortable with the pace of inflation.


Prime Rate Prediction: Forecast for The Prime Rate

According to the latest and most authoritative data from the government, U.S. GDP rose by a strong 5.6% in the first-quarter. Nevertheless, consistently high crude oil prices and the higher cost of borrowing have had a cooling effect on the U.S. economy, and this means that the Fed is somewhat less likely to raise rates again in the future. Investors on Wall Street were quite pleased with the language in today's press release, as evidenced by the strong gains made by the 3 major indices today, with the Dow Jones Industrial Average (DJIA) gaining a healthy 217 points.

As of right now, Fed Funds Futures traders have odds at about 62% (according to current pricing on contracts) that the FOMC will elect to raise the benchmark Fed Funds Target Rate by another 25 basis points to 5.50% at the August 8 monetary policy meeting. Prior to today's rate increase, the odds on another quarter-point rate hike on August 8TH were at about 83%.

Simple Summary of the latest Prime Rate predictions:

  • Current odds that the Prime Rate will rise
    to 8.50% on August 8, 2006: 62%

The odds related to Fed Funds Futures contracts--widely accepted as the best predictor of where the FOMC will take the benchmark Fed Funds Target Rate--are continually changing, so stay tuned for the latest odds, especially when The FOMC releases the minutes from today's meeting, which should happen on July 20TH, 2006.


Here's a snippet from the press release that was issued by the Fed earlier this afternoon:

"The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5-1/4 percent.

Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

Readings on core inflation have been elevated in recent months. Ongoing productivity gains have held down the rise in unit labor costs, and inflation expectations remain contained. However, the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures.

Although the moderation in the growth of aggregate demand should help to limit inflation pressures over time, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Jeffrey M. Lacker; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen."

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Wednesday, May 10, 2006

Prime Rate Increase Today: U.S. Prime Rate Is Now 8.00%

If you have plans to access money in the near future via an Adjustable Rate Mortgage (ARM), a car loan or a shiny new variable rate credit card, then we have some news that you should know about: in accordance with all the reliable interest rate predictions and forecasts, the Federal Open Market Committee (FOMC) of The Federal Reserve has just raised its target for the benchmark Federal Funds Rate by 25 basis points (0.25 percentage point) to 5.00%. Therefore, as of this afternoon, the de facto Wall Street Journal® Prime Rate (the U.S. Prime Rate) is now 8.00%. Many American banks have already issued a press release announcing that their prime lending rate has increased from 7.75% to 8.00%, including:

  • The Bank of America*
  • Northern Trust*
  • PNC*
  • Harris N.A.*
  • Dollar Bank*
  • National City*
  • Comerica Bank*
  • Wells Fargo*
  • KeyCorp*
  • U.S. Bancorp*
  • M&T Bank*
  • SunTrust*
  • Wachovia*
  • Sky Financial*

The Fed has raised it's target for the Fed Funds Rate 16 times in a row since June, 2004.


Prime Rate Prediction: Forecast for The Prime Rate

The economy has been moving ahead at a strong pace since the start of 2006, so predictions have been quite easy to make, as economists, academics and investors knew that the Fed would raise rates in order to control inflation. Now that certain signals are indicating that the economy may be slowing down, predictions about the Fed's next move related to interest rates will be a bit trickier.

As of right now, Fed Funds Futures traders have odds at about 42% (according to current pricing) that the FOMC will raise the benchmark Fed Funds Target Rate by another 25 basis points when the June 28-29 monetary policy meeting adjourns. Yesterday, Fed Funds Futures traders had odds at 40%.

The odds related to Fed Funds Futures trade are continually changing, so stay tuned for the latest odds, especially when The FOMC releases the minutes from today's meeting, which should happen on May 31st, 2006.


Here's a snippet from the press release that was issued by the Fed moments ago:

"The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5 percent.

Economic growth has been quite strong so far this year. The Committee sees growth as likely to moderate to a more sustainable pace, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures.

The Committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen."

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Tuesday, April 18, 2006

Minutes From The March 28-29, 2006 FOMC Meeting Were Released Today; Prime Rate Increase Likely on May 10, 2006

The minutes from the March 28-29, 2006 Federal Open Market Committee (FOMC) meeting were released earlier today. A couple of interesting snippets from those minutes can be found below:

"...In the Committee's discussion of monetary policy for the intermeeting period, all members favored raising the target federal funds rate 25 basis points to 4Âľ percent at this meeting. The economy seemed to be on track to grow near a sustainable pace with core inflation remaining close to recent readings against a backdrop of financial conditions embodying an expectation of some tightening. Since the available indicators showed that the economy could well be producing in the neighborhood of its sustainable potential and that aggregate demand remained strong, keeping rates unchanged would run an unacceptable risk of rising inflation. Most members thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy. However, members also recognized that in current circumstances, checking upside risks to inflation was important to sustaining good economic performance. The need for further policy firming would be determined by the implications of incoming information for future activity and inflation..."

"...With regard to the Committee's announcement to be released after the meeting, members expressed some difference in views about the appropriate level of detail to include in the statement. In the end, they concurred that the statement should note that economic growth had rebounded in the current quarter but that it appeared likely to moderate to a more sustainable pace in coming quarters. Policymakers agreed that the announcement should also highlight the favorable outlook for inflation and summarize their reasons for that assessment, but that it should reiterate that possible increases in resource utilization, along with elevated levels of commodity and energy prices, had the potential to add to inflation pressures. Changes in the sentence on the balance of risks to the Committee's objectives were discussed. Several members were concerned that market participants might not fully appreciate the extent to which future policy action will depend on incoming economic data, especially when an end to the tightening process seems likely to be near. Some members expressed concern that retention of the phrase "some further policy firming may be needed to keep the risks...roughly in balance" could be misconstrued as suggesting that the Committee thought that several further tightening steps were likely to be necessary. Nonetheless, all concurred that the current risk assessment could be retained at this meeting..."
Interesting notes, notes that many on Wall Street were happy to read, as the Dow Jones Industrial Average (DJIA) gained a very healthy 194 points today. Investors responded to today's release with bullishness because they divined the language in the Fed minutes as a hint that the Fed may end their rate raising regimen at the next FOMC meeting, which is scheduled to take place on May 10th, 2006.

As we move into the second quarter, the economy still appears to be advancing with a full head of steam. Unemployment is low--the U.S. has a jobless rate that is the envy of many nations in the industrialized world--and the latest government reports on the U.S. economy indicate that inflation may not be a serious problem.

Of course, the ever increasing cost for a barrel of the light sweet stuff (crude is currently @ $72 per barrel in New York, and rising) is still threatening to "pass through" and cause general price increases for both consumers and producers--inflation--and this may prompt the Fed to raise their benchmark Fed Funds Rate beyond 5% later this year. Other issues that are influencing the cost of crude oil include:

  • Political tensions in Nigeria, Iran and Iraq (Iraq is pumping less oil today than it was before the war.)

  • The summer driving season is upon us, which means increased demand for fuel.

  • The conversion from MTBE reformulated gasoline (RFG) to ethanol RFG in certain regions of the U.S. including the East Coast and major metropolitan areas in Texas.

The Latest Prime Rate Predictions

The investors who trade in Fed Funds Futures are now predicting (according to current pricing) a 100% chance that The FOMC will raise The Fed Funds Target Rate by another 25 basis points (0.25 percentage points) when The FOMC convenes their third monetary policy meeting for 2006, which is scheduled to take place on May 10th, 2006. A quarter point increase to the Fed Funds Target Rate would, of course, translate to a nationwide Prime Rate increase from the current 7.75% to 8.00%.

The fourth FOMC meeting for 2006 is set to convene on June 28-29, 2006, and Fed Funds Futures traders are now predicting (according to current pricing) a 30% chance that The FOMC will raise The Fed Funds Rate by another 0.25 percentage points when the June 28-29 meeting adjourns.

The odds that have been referenced in this blog entry change on a regular basis, so stay tuned for the latest odds.


The current U.S. Prime Rate (Wall Street Journal® Prime Rate) is 7.75%, and a jump to 8.00% is very likely after the FOMC adjourns on May 10th, 2006.

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Tuesday, March 28, 2006

Prime Rate Increase Today: U.S. Prime Rate Is Now 7.75%

Today's rate increase by The Fed comes as no surprise to the business, banking, academic and investment communities, as today's 25 basis point (0.25 percentage point) increase to The Federal Funds Target Rate was fully expected.

The Federal Open Market Committee (FOMC) of The Federal Reserve today voted to raise their Fed Funds Target Rate to 4.75%. Therefore, as of this afternoon, the de facto Wall Street Journal® Prime Rate (the U.S. Prime Rate) is now 7.75%, the highest it's been in 5 years. Many American banks have already issued a press release announcing that their prime lending rate has increased from 7.5% to 7.75%, including:

  • The Bank of America*
  • The Bank of New York*
  • PNC*
  • Comerica Bank*
  • Wells Fargo*
  • Wachovia*
  • KeyCorp*
  • SunTrust*
  • U.S. Bancorp*
  • Sky Financial Group*
  • M&T Bank*

What's Ahead for the Prime Rate

Low unemployment coupled with strong economic growth and high energy prices are all placing inflationary pressure on the nation's economy. High energy costs--and, of course, we are talking about crude oil here--continue to threaten to "pass through" and cause a general price increases for both consumers and producers. Right now, NYMEX crude oil for future delivery is at a staggering $65.94 per barrel, and no one knows when the political tensions in the Middle East and Africa are going to simmer down.

Today was Dr. Ben Bernanke's debut as the FOMC boss, so rate watchers, economists, academics, investors--anyone and everyone with an interest in the U.S. economy--are all scrutinizing the press release that was issued by The Fed today with much fervor. Many rate watchers are going to be pleased about the wording in today's release, as the comments contain language that provides some useful insight as to future interest rate decisions that will be made by the FOMC:

"The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives."

Yup, good stuff, because the statement about future policy is virtually identical to the one that can be found in the January 31, 2006 FOMC press release when Alan Greenspan was still calling the shots, and I think lots of folks like the idea that Bernanke is probably making an effort to emulate Dr. Greenspan's approach to U.S. economic stewardship.

We can tell by the above language that if the economy continues to move ahead at a healthy pace, and other factors like low unemployment and high energy prices continue to place inflationary pressure on the economy, then we should expect another 25 basis point increase to the Federal Funds Target Rate after the FOMC adjourns on May 10th, 2006; a Fed Funds Rate of 5% after May 10th, 2006, would translate to a national Prime Rate of 8%, because the Prime Rate can be expressed as:

U.S. Prime Rate = The Fed Funds Rate + 3


Prime Rate Prediction: The Latest Odds from Fed Funds Futures Traders

The investors who trade in Federal Funds Futures have shifted the odds--according to current pricing--of another quarter point hike to the Fed Funds Rate following today's statement by The FOMC: odds of another 0.25 percentage point increase have gone from 76% to 90%. So, according to current pricing on Federal Funds Futures, we should expect a U.S. Prime Rate of 8% after the FOMC adjourns on May10th, 2006.

The odds related to Fed Funds Futures trade are continually changing, so stay tuned for the latest odds, especially when The FOMC releases the minutes from today's meeting, which should happen on April 18th, 2006.


Here's a snippet from the press release that was issued by The Fed today:

"The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4-3/4 percent.

The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors. Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace. As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures.

The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen."

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Tuesday, January 31, 2006

Prime Rate Increase Today: The WSJ Prime Rate Is Now 7.5%

As expected, The Federal Open Market Committee (FOMC) of The Federal Reserve Board has just voted to raise The Federal Funds Rate by 25 basis points (0.25 percentage points) to 4.5%. This means that the de facto Wall Street Journal Prime Rate (the U.S. Prime Rate) is now 7.5%. Many American banks have already released statements announcing that their prime lending rate is now 7.5%, including:

  • The Bank of America*
  • The Bank of New York*
  • Wells Fargo*
  • Wachovia*
  • KeyCorp*
  • SunTrust*
  • Colonial Bank*
  • Sky Financial Group*

Today's rate increase comes as no surprise to economists, bankers and rate watchers, as most have been predicting a quarter point increase from The Fed today. Today's Fed Funds Rate increase-- and subsequent prime rate increase--is the 14th straight bump to these key banking interest rates, and it looks like more rate increases are coming as the year progresses.

Prime Rate Predictions

According to the latest economic data, the economy is doing well, and if the economy continues to do well, then another rate increase is likely, as The Fed will try to cool things down in an effort to stave-off inflation. The Fed is also keenly interested in attaining what's called the "neutral rate" for the Federal Funds Rate: the neutral rate can be described as a Fed Funds Rate that neither encourages nor curtails U.S. economic growth. Most economist believe that with the current Fed Funds Rate of 4.5%, we aren't quite @ "neutral" yet, so at least one more 0.25 percentage point increase should be expected.

The majority of economists who responded to a recent poll are predicting that The Fed Funds Rate will be bumped up to 4.75% by the end of June, 2006, and that it will remain @ 4.75 for the rest of 2006. Since the prime rate can be expressed as:

U.S. Prime Rate = The Fed Funds Rate + 3

then, according to the latest predictions, the WSJ Prime Rate should hit 7.75% by mid-summer and stay @ 7.75% for the rest of the year.

A minority of the folks who deal in government securities that are associated with The Fed are predicting that The Fed will raise The Fed Funds Rate to 5% by the end of 2006.

Of course, there are many, continually shifting variables that have an effect on The Fed's interest rate strategy, foremost being inflation, but there are also many other important measures of the U.S. economy that The Fed watches closely. And let's not forget that a new Fed Chairman taking is over tomorrow--so prime rate predictions should always be viewed with a skeptical eye.

Alan Greenspan Exits As Ben Bernanke Is Confirmed As The New Fed Chairman

Alan Greenspan leaves his post as Fed Chairman today as a banking celebrity (there are even rock songs that invoke his name!) and it's no surprise if you think about it.

The economy is cyclical, so there will always be periods of economic growth, followed by periods of economic sluggishness, then growth again, and so on ad infinitum. As Chairman of The Federal Reserve Board, Dr. Greenspan was in charge of U.S. monetary policy during America's longest sustained economic expansion of the postwar period, and that is nothing to sneeze at. Greenspan should be proud of his accomplishments--no doubt--but we should also keep the other side of the coin in mind: how much credit can we bestow on Greenspan when in fact his only real power was controlling banking interest rates? Was the expansion of the 90's a bad thing, since e.g. many of those billion-dollar-burn-rate, dotcom companies ended up going nowhere? Did Greenspan & Co. set interest rates too low, creating a massive real estate bubble that will end up hurting American consumers in the long term? Did low interest rates help to turn Americans into borrow-crazy consumers with little or no savings?

I personally think that Alan Greenspan did a good job, especially the way he handled the country's banking situation after the 911 attacks. To put things into perspective, check out the way interest rates were going in the early 80's before Greenspan took over: not a pretty picture! The way I see it, Greenspan could have done much worse, and that is the bottom line.

Greenspan will now go back to economic consulting, which is what he was doing before going into public service; the latest (unconfirmed) buzz is that Greenspan's new consulting firm will be called Greenspan Associates. I think it's safe to write that, as a consultant, Greenspan will charge whatever he wants for his services, and he'll get it.

Ben Bernanke was confirmed to take over as The Fed Chairman today, and I wish him well; officially, Bernanke will take the helm tomorrow morning. Bernanke steps up to the plate with excellent credentials so I doubt that Americans have anything to worry about. Many would rather just clone Greenspan and give the facsimile two terms as Fed chief; just nervousness about a new face, that's all.

The next FOMC meeting--which will be the first with Ben Bernanke calling the shots--will take place on March 28, 2006, and, as of right now, most experts are predicting another 0.25 percentage point increase to The Fed Funds Rate (which would translate to a 0.25 percentage point increase to the WSJ Prime Rate.) Stay tuned to The Prime Rate Blog as I'll be posting the latest buzz about prime rate predictions between now and the end of March.

Here's a snippet from today's press release issued by The Fed:

"The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4-1/2 percent.

Although recent economic data have been uneven, the expansion in economic activity appears solid. Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures.

The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.

Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Roger W. Ferguson, Jr.; Jack Guynn; Donald L. Kohn; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; and Janet L. Yellen."

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Tuesday, November 01, 2005

Fed Funds Rate Goes Up Another 25 Basis Points; The Published WSJ Prime Rate Set To Do The Same

Today, The Fed decided to continue with their incremental rate raising strategy and raised the Fed Funds Rate (FFR) by 25 basis points (or 0.25 percentage points) to 4.0%. This is the 12th consecutive 25 basis point increase of the FFR, and the Fed probably won't stop raising the FFR until the so called "neutral" rate is reached (intelligent guesstimates have the neutral centered @ 4.5%.), so you can expect another 25 basis point increase when the Federal Open Market Committee (FOMC) meets again in December.

Fuel prices are still relatively high, and hurricane season won't be over until the end of November(!) But the economy is still doing OK, growing by an estimated 3.8% in the 3rd quarter, so today's increase didn't meet any resistance by any of the FOMC members.

Within a day or two, the published Wall Street Journal Prime Rate will go up by 25 basis points to an even 7%. Another 25 basis point increase to the published prime rate is expected after the Fed meets in December.

Here's a snippet from a press release issued by the FOMC today:

"The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4 percent.

Elevated energy prices and hurricane-related disruptions in economic activity have temporarily depressed output and employment. However, monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity that will likely be augmented by planned rebuilding in the hurricane-affected areas. The cumulative rise in energy and other costs has the potential to add to inflation pressures; however, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained.

The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.

Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Roger W. Ferguson, Jr.; Richard W. Fisher; Donald L. Kohn; Michael H. Moskow; Mark W. Olson; Anthony M. Santomero; and Gary H. Stern."

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Wednesday, September 21, 2005

Rate Hike: WSJ Prime Rate Goes Up By 0.25 Percentage Points Despite Fuel Prices, A Dismal Jobs Outlook and Hurricane Woes

Lots of folks down South are hurting due to the devastation wrought by Hurricane Katrina. With Hurricane Rita now churning and building strength in the Gulf and higher fuel prices across the country, many experts were predicting that The Fed would give their rate hike strategy a rest. After all, lots of people are going to need to borrow funds in order to rebuild their homes and businesses. And high fuel costs are putting an extra strain on a wartime economy.

But The Fed, in all their inflation-curbing wisdom, decided to stick to their proverbial guns and raise rates again (Board member Mark W. Olson was the only person to vote for no change to the fed funds target rate at the September 20, 2005 FOMC meeting--That's how I would have voted!) Let's hope they're right about this increase, because the economy isn't looking that great to me! Personal debt is at an all time high and the economy is expected to lose 400,000 jobs within the next 4 months. Hurricanes, debt, fuel prices, jobs, wars...and now a rate hike. Only time will tell if increasing the cost of money was a good move for the America of fall, 2005.

Within the next day or so, the published Wall Street Journal Prime Rate will rise by 25 basis points to 6.75%. The corresponding Fed Funds Rate is now 3.75%. Here's a piece of the Federal Open Market Committee's * press release:

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 3-3/4 percent.

Output appeared poised to continue growing at a good pace before the tragic toll of Hurricane Katrina. The widespread devastation in the Gulf region, the associated dislocation of economic activity, and the boost to energy prices imply that spending, production, and employment will be set back in the near term. In addition to elevating premiums for some energy products, the disruption to the production and refining infrastructure may add to energy price volatility.

While these unfortunate developments have increased uncertainty about near-term economic performance, it is the Committee's view that they do not pose a more persistent threat. Rather, monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Higher energy and other costs have the potential to add to inflation pressures. However, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained.

The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.


NB1: On Monday, September 19, 2005, the cost for a barrel of light sweet crude rose by more than $4, a singular event, as this was the largest price jump to ever occur on a single day for a barrel of the light sweet stuff.

NB2: The Dow Jones Industrial Average fell by just over 76 points in response to the recent Fed rate increase.

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Tuesday, August 09, 2005

Prime Rate Increase: Wall Street Journal Prime Rate Goes Up By 25 Basis Points

Gas prices! Gas prices! Is there any relief on the horizon? Even Wal-Mart is complaining about the high cost of energy cutting into their profits. Nobody feels sorry for Wal-Mart, but what about the rest of us? Any now interest rates go up again. Doesn't anybody care about the middle class anymore? Hey, Mr. Greenspan: give us a break!

Today, The Wall Street Journal Prime Rate went up by 0.25 percentage points and is now 6.50%. The corresponding Fed Funds Rate is now 3.50%. Here's what The Federal Open Market Committee* had to say about today's rate increase:

The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Aggregate spending, despite high energy prices, appears to have strengthened since late winter, and labor market conditions continue to improve gradually. Core inflation has been relatively low in recent months and longer-term inflation expectations remain well contained, but pressures on inflation have stayed elevated.

The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.

Click here for a comprehensive history of The Wall Street Journal Prime Rate.

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Wednesday, June 29, 2005

2006 FOMC Tentative Meeting Schedule Released Today

Today, The Federal Reserve's Open Market Committee (FOMC) released their tentative meeting schedule for 2006. The FOMC doesn't always stick to the exact dates on the schedule (hence tentative), but they do always meet at least 8 times per calendar year.

Why is this schedule important to you? Because it is at these FOMC meetings that The FOMC votes on whether to raise, lower or make no changes to The Fed Funds Target Rate, and when the Fed Funds Target Rate changes, The Wall Street Journal® Prime Rate (also known as the U.S. or national prime rate) will also change.

Here's the tentative schedule for 2006:

January 31 - February 1, 2006

March 28, 2006

May 10, 2006

June 28-29, 2006

August 8, 2006

September 20, 2006

October 24, 2006

December 12, 2006

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Tuesday, May 03, 2005

WSJ Prime Rate Increase: Wall Street Journal Prime Rate Goes Up By 25 Basis Points

Today, The Wall Street Journal Prime Rate rose by 0.25 percentage points and is now 6.00%. This rate increase is, as you might have guessed, in synch' with today's hike of The Federal Funds Rate, which is now 3.00%. Comments from The Federal Open Market Committee* are as follows:

The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Recent data suggest that the solid pace of spending growth has slowed somewhat, partly in response to the earlier increases in energy prices. Labor market conditions, however, apparently continue to improve gradually. Pressures on inflation have picked up in recent months and pricing power is more evident. Longer-term inflation expectations remain well contained.

The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.

Click here for a comprehensive history of The Wall Street Journal Prime Rate.

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