Prime Rate

also known as the Fed, National or United States Prime Rate,
from the interest-rate specialists at www.FedPrimeRate.comSM

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 US Prime Rate will rise by 25 basis points to 6.75%. The corresponding Fed Funds Target 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.

Labels: , ,

>  SITEMAP  <

Links to this post:

Create a Link

<< Home





FedPrimeRate.com
Entire Website © 2017 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.