Prime Rate

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

Wednesday, March 19, 2014

Second FOMC Meeting of 2014 Adjourned: U.S. Prime Rate To Continue At 3.25%

FOMC votes to leave short-term rates unchanged; US Prime Rate to continue at 3.25%The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its second monetary policy meeting of 2014 and, in accordance with our most recent forecast, has voted to leave short-term interest rates at their current levels. Therefore, the benchmark target range for the federal funds rate will remain at 0% - 0.25%, and the Wall Street JournalĀ® Prime Rate (a.k.a the U.S., national, WSJ or Fed Prime Rate) will continue at the current 3.25%.

Here's a clip from today's FOMC press release (note text in bold):

"...Information received since the Federal Open Market Committee met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in April, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

With the unemployment rate nearing 6-1/2 percent, the Committee has updated its forward guidance. The change in the Committee's guidance does not indicate any change in the Committee's policy intentions as set forth in its recent statements.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Richard W. Fisher; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; and Daniel K. Tarullo.

Voting against the action was Narayana Kocherlakota, who supported the sixth paragraph, but believed the fifth paragraph weakens the credibility of the Committee's commitment to return inflation to the 2 percent target from below and fosters policy uncertainty that hinders economic activity..."

Labels: , ,

>  SITEMAP  <

Wednesday, January 29, 2014

First FOMC Meeting of 2014 Adjourned: U.S. Prime Rate To Continue At 3.25%

FOMC votes to leave short-term rates unchanged; US Prime Rate to stay at 3.25%The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its first monetary policy meeting of 2014 and, in accordance with our most recent forecast, has voted to leave short-term interest rates at their current levels. Therefore, the benchmark target range for the federal funds rate will remain at 0% - 0.25%, and the Wall Street JournalĀ® Prime Rate (a.k.a the U.S., national, WSJ or Fed Prime Rate) will continue at the current 3.25%.

Here's a clip from today's FOMC press release (note text in bold):

"...Information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate declined but remains elevated. Household spending and business fixed investment advanced more quickly in recent months, while the recovery in the housing sector slowed somewhat. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee continues to see the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other  policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Richard W. Fisher; Narayana Kocherlakota; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen...."

Labels: ,

>  SITEMAP  <

Wednesday, December 18, 2013

2014 Prime Rate Forecast: Prime Very Likely To Contiue At 3.25% All Year

prime rate forecastHere's a clip from today's Federal Open Market Committee (FOMC) monetary policy release:

"...Beginning in January [2014], the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month..."
So the Fed has decided to lift its foot off the money-printing pedal next month, just a little bit, and will buy $75 billion of debt per month, instead of $85 billion.

Wall Street reacted positively to the Fed's decision to begin tapering its bond-buying program, with both the Dow Jones Industrial Average (DJIA) and the S&P 500 Index closing with new record highs today.

Scaling back on bond buying, after all, means that the Fed is confident that the economy will continue to improve.

Wall Street was also cheered by the Fed's solid language regarding short-term rates; another clip:

"...The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal..."
In other words, the Fed is going to keep short-term rates (which includes the US Prime Rate)  in the deep freeze until the economy is very firmly in escape-velocity mode, and is willing to risk some inflation down the road to get there.

The United States Prime Rate is essentially a function of the fed funds target rate:

US Prime Rate = (The Federal Funds Target Rate + 3)

And , at 3-1/4%, the Prime is currently as low as it can go.

Month after month after month of strong, non-farm payrolls, with 2% inflation on the side.  That's what the Fed is looking for.

Earlier today, the FOMC also released projections for the benchmark fed funds target rate.  Out of 17 participants, only 2 are forecasting a increase for the fed funds target rate at some point during 2014, with 15 predicting that the FOMC will leave it where it is right now (range of 0%-0.25%.)

--

Dr. Janet L. Yellen
Dr. Janet L. Yellen
Dr. Janet L. Yellen is set to take over as Fed Boss early next year.

Her challenges are many, and the scrutiny will be intense.  Continuing to steer and eventually complete the economic recovery which Ben Bernanke started will be no picnic, with the headwind of a dysfunctional Congress and a virtually empty toolbox.

But if anyone has the brains and background to get the job done, it's Dr. Yellen.

Ben Bernanke is a clever economist too.

But, despite being an expert on the Great Depression, Dr. Bernanke hasn't been able to get the US economy back to full strength, and he's had four years to try. 

Moreover, Fed Boss Bernanke was late in his reaction to the banking crisis and subsequent housing crash, a tardiness that may have contributed to the protracted nature of the worse recession since the big one back in 1929.

Let's see if Dr. Yellen can figure out how to get banks to stop sitting on their massive piles of cash, and lend to deserving businesses and entrepreneurs.

--

Mortgage Rate Forecast

If the economic recovery continues at a strong and sustained pace, investors will continue to rotate out of the safety of government debt, and move to riskier assets like stocks.

If that happens, US Treasury yields will rise, which will cause mortgage rates to rise (rates associated with  30-year, fixed-rate mortgages track very closely with the yield on the Ten-Year US Treasury Note.)

If the recovery peters out, then investors will scramble back to government bonds, and mortgage rates will fall.

Anyone who thinks that they can offer a more accurate prediction of American mortgage rates, will probably try to sell you a popular and vintage bridge in Brooklyn next....

--

From the rate watchers here @ www.FedPrimeRate.com: All the best for 2014.

--

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 Federal Open Market Committee (FOMC) will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the January 29TH, March 19TH and April 30TH, 2014 FOMC monetary policy meetings.


Summary of the Latest Prime Rate Forecast:

  • Current odds that the Prime Rate will remain at the current 3.25% after the January 29TH, March 19TH and April 30TH, 2014 FOMC monetary policy meetings are adjourned: 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.

Labels: , , , , , , , , , , , ,

>  SITEMAP  <





FedPrimeRate.com
Entire Website © 2014 FedPrimeRate.comSM


Information in this website is provided for educational purposes only. The owners of this website
make no warranties with respect to any and all content contained within this website. Consult a
financial professional before making important decisions related to any investment or loan
product, including, but not limited to, business loans, personal loans, education loans, first
or second mortgages, credit cards, car loans or any type of insurance.