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 8^TH 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 20^TH, 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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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 31^st, 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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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 10^th, 2006; a Fed Funds Rate of 5% after May 10^th, 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 May10^th, 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 18^th, 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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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 14^th 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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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 12^th 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 3^rd 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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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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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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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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