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U.S. Prime Rate Glossary

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The U.S. Prime Rate: A benchmark, short-term interest rate used in the banking system of the United States. The Prime Rate serves as an index or base rate for many types of loans and credit products for both businesses and consumers. The Prime Rate is invariably 3.00 percentage points (300 basis points) above the benchmark Fed Funds Target Rate. The U.S. Prime Rate is also known as the Wall Street Journal (WSJ) Prime Rate, the Fed Prime Rate and the national Prime Rate.

The Fed: The United States Federal Reserve System, which acts as America's central bank.

The FOMC: Short for the Federal Open Market Committee. Made up of seven Federal Reserve Governors plus five Federal Reserve Bank presidents, the FOMC is the group within the Federal Reserve system that makes decisions on short-term interest rates, the most potent of which is the Fed Funds Target Rate (FFTR). The FOMC meets 8 times per year to set rates, and the group may also hold an emergency meeting at any time, if an intermeeting adjustment for short-term rates is expedient.

The Fed Funds Rate: The rate at which American banks borrow overnight funds from each other, via one of the 12 regional Federal Reserve banks. The Fed sets a target for the fed funds rate, and it is this target that serves as the main benchmark interest rate for the United States. The target for the fed funds rate influences other key financial market indexes, both domestic and global, like the U.S. Prime Rate and the London Interbank Offered Rates (LIBOR).

    • The Fed uses the FFTR to regulate the American economy, lowering it when the economy needs a boost, and raising it when the pace of inflation is too high. The FFTR was adopted as the Fed's main monetary policy tool back in 1990.

Intermeeting Rate Adjustment: This is when the Federal Open Market Committee (FOMC) convenes an unscheduled monetary policy meeting in order to make adjustments to short-term interest rates, i.e. the Fed Funds Target Rate and/or the discount rate. This type of FOMC gathering is also called an emergency meeting.

Short-Term Rates: The short-term interest rates that are controlled by the U.S. Federal Reserve, i.e. the Fed Funds Target Rate, the U.S. Prime Rate and the discount rate.

by Steve "AmCy" Brown, FedPrimeRate.comSM

 


 

Prime Rate  |  Current Prime Rate  |  Prime Rate History  |  Prime Rate Forecast  |  SITEMAP
Mortgage Refi | Credit CardsEconomy | Life InsuranceLIBOR
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Chart: U.S. Prime Rate vs. Fed Funds Target Rate vs. 1-Month LIBOR vs. 3-Month LIBOR

Chart: Prime Rate vs. 15 & 30 Year Fixed-Rate Mortgages vs. 10-Year Treasury Yield
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