Is The Honeymoon Over? Wall Street Journal Prime Rate Bumped Up By 25 Basis Points

Happy Independence Day holiday to all from the Prime Rate Blog!

Before I write anything else, let me communicate this: God bless America, and God bless The Fed! We haven't had a hike in interest rates in over a year (the last rate hike was a wee bit more than a year ago, but who's counting? We are!), and that alone is worth celebrating!

The Wall Street Journal Prime Rate has been at 4 percent for just over a year now, and I think it's actually quite amazing that this unbelievably low rate has been with us for that long. It's almost as though the god of commerce and spending decided to throw a year long party, and every American consumer was invited!

Well, I was hesitant at first, but I've decided to show up to the party a bit late: today I signed up for a "blank check" financing deal from Capital One Auto Finance to buy a car that I've been wanting for some years now (no down payment required! Woohoo!); I also signed up for 2 new credit cards, both of which have low fixed interest rates and generous 0% introductory APR balance transfer offers attached to them. I'm paying 0.25 percentage points more than I would have paid on the money I'm borrowing if I had jumped into the borrowing game last week, but I actually thought interest rates might dip even lower. I should have known that The Fed wouldn't go lower than one (1) percent! Nevertheless, I'm quite satisfied with the deals I've signed up for, and I don't think I'll regret my decision to borrow.

The Wall Street Journal Prime Rate has been bumped up by 0.25 percentage points, and is now 4.25%. The Target Federal Funds Rate has increased to 1.25%. Notes from The Fed* below:

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

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. The evidence accumulated over the intermeeting period indicates that output is continuing to expand at a solid pace and labor market conditions have improved. Although incoming inflation data are somewhat elevated, a portion of the increase in recent months appears to have been due to transitory factors.

The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters are roughly equal. With underlying inflation still expected to be relatively low, 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; Ben S. Bernanke; Susan S. Bies; Roger W. Ferguson, Jr.; Edward M. Gramlich; Thomas M. Hoenig; Donald L. Kohn; Cathy E. Minehan; Mark W. Olson; Sandra Pianalto; and William Poole.

In a related action, the Board of Governors approved a 25 basis point increase 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 Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco.

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