United States Prime Rate

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

Friday, March 27, 2009

Futures Market 94% Certain Prime Rate Will Hold At 3.25% After The April 29 Fed Meeting

prime rate forecastThe Dow Jones Industrial Average (DJIA) advanced by 497.80 points this week (6.839%) while the broader S&P 500 Index gained 47.40 points (6.168%.) It was the third straight week of gains for the two indices since stocks hit a bear-market low on March 6, 2009. For some perspective, here's our latest bear market update.

Since closing with record highs on October 9, 2007, the DJIA has now given up 6,388.35 points (45.101%), while the S&P 500 Index has declined by 749.21 points (47.868%). The record high for the DJIA is 14,164.53; for the S&P 500 Index it's 1,565.15.

For the year, the DJIA is down 1,000.21 points (11.397%), while the S&P 500 is down 87.31 points (9.666%).

In other economic news:

  • On Thursday, the Commerce Department released the final word on the gross domestic product (GDP) for Q4 2008: the U.S. economy shrank by an annualized rate of 6.3% during the last three months of last year.
  • On Friday, the Commerce Department reported that personal income declined by 0.2% during February, while consumer spending advanced by 0.2%.
  • On Monday, the National Association of Realtors® reported that prices on preowned homes improved, but inventories climbed higher. The median price on a used home rose from $164,800 for January to $165,400 for February, while the average price rose from $206,700 for January to $209,700 for February. Inventories -- the number of previously occupied homes for sale at the end of February -- jumped from 3,611,000 for January to 3,798,000 for February.

    Click here for historical prices and a chart.
  • On Wednesday, the Commerce Department reported that the median price on a new (never-occupied) home fell from $206,800 during January to $200,900 during February.

    Click here for historical prices and a chart.

As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 94% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the April 29TH, 2009 monetary policy meeting.

Summary of the Latest Prime Rate Forecast:
  • Current odds that the Prime Rate will remain at the current 3.25% after the April 29TH, 2009 FOMC monetary policy meeting is adjourned: 94% (very likely)
  • 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.

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Wednesday, March 25, 2009

Tips for Surviving A Recession

Americans are worried about their finances, and they're angry with their government. The federal government is borrowing tens of billions of dollars to keep zombie banks and corporations alive, while at the same time offering limited help for individual Americans who have always been responsible with their finances. Regardless of what the government is doing, middle-class families, small business owners and everyone else who's feeling the pinch of this recession should do what they can to survive. Here are some recession survival tips:

  • Become An Indispensable Employee - Layoffs are happening everywhere; no sector of the economy is safe. A sound workplace strategy: become the employee that your company can't do without. You don't have to suck up to your boss, but there are things you can do to make yourself stand out in the crowd. Be the employee who shows up to work early and leaves late. Make a point of showing off to your boss just how productive you are. Every once in a while, make intelligent recommendations on how the company you work for can save money. When you see a conflict flare up, be the level-headed mediator who resolves the problem.

  • Get Rid of Your Debt - Don't get into the mindset that having credit card debt is OK. It's not OK. Even if you have only a few hundred dollars of credit card debt, and you're paying interest on that debt, then your finances need fixing. Cut back on extraneous expenses and pay your credit card debt down to zero as soon as you can.

    If you have old credit card accounts that you don't use, keep these cards open. This will help to keep your FICO® credit score healthy. If you recently used an old credit card to make a small purchase so that your bank doesn't close the account, that's fine. But pay that balance down to zero right away. You will reap no benefit from paying down a credit card balance over time, large or small.

  • Stay Fit! - We all know that there are unnumbered benefits associated with physical and mental fitness. One of the most overlooked is the amount of money it can save. You can't prevent the medical bills associated with e.g. a car accident but, by staying in shape, eating right and not smoking, you can prevent maladies like cancer, type II diabetes, heart disease and hypertension. Medical bills can pile up extremely fast, and, if you're unfortunate enough to end up dealing with a protracted illness, you could end up losing your job as well.

    Keep your brain healthy by eating foods that contain omega-3 fatty acids as often as possible. Sardines, salmon and fish oil pills are all good picks. If you want to have a great mind into your old age, exercise and cultivate your brain by learning new skills like a new language or new dance steps. When you're bored waiting in line somewhere, count backwards in your head. Start with the number 300, then subtract seven or nine (not an easy decrement like two or five), and keep going. A healthy, productive brain is the best tool you can have to build wealth in any economic climate.

  • Boost Your Rainy-Day Fund - Your goal should be to have enough cash in the bank to survive for a year if you lost your main source of income.

  • Invest In Gold and Peer-to-Peer (P2P) Lending - Right now, both the Dow Jones Industrial Average (DJIA) and the S&P 500 Index are off more than 45% from their October 9, 2007 peak. Bottom line: stocks aren't looking good right now. Moreover, since stocks have become unattractive to both institutional and individual investors, lots of Wall Street money has been moving to the safety of government securities, driving yields way down. Investing in gold makes perfect sense right now. The Fed and the Treasury department have been pumping vast quantities of cheap cash into the economy, which will cause inflation to flare up like an ulcer down the road. Investors will move their money to gold even faster than they are now, driving its price upward.

    P2P lending is also a great investment option right now, if you can tolerate some risk. For example, at Lending Club, the average return is 9.05%. Where else can you help yourself with a high rate of return, while helping worthy borrowers who can't find loans elsewhere?

  • Sell Stuff on eBay and Craigslist - You know you have lots of stuff around the house that you could sell on eBay.com, so just sell it. Better yet, list your stuff on Craigslist.com for free. Whenever you pick up an item in your home and say to yourself, "Nah, that couldn't sell on eBay or Craigslist," snap a few photos of the item and list it. Just about anything can be sold online; this is especially true today as this recession has turned many consumers into serious bargain hunters.

  • Refinance Your Mortgage - Right now, the Federal Reserve and the Treasury Department are working together to keep mortgage rates as low as possible. The average refinance rate is expected to fall and remain below 5% for some time, which makes it a great time to get out of a high-rate mortgage. To get the best rate, make an effort to get your FICO credit score above 760 (720 is no longer considered top-tier.)
If you don't like what the government is doing with your tax dollars and money it's borrowing from other countries then contact your representatives in the House and Senate. But don't waste too much time and energy complaining. Every morning, remind yourself to focus your efforts on increasing your income and net worth. This recession has the potential of lasting two years or more, so even wealthy families are cutting back and preparing themselves for the worst. The key to surviving this economic downturn is to build and preserve wealth, but never overlook the importance of preserving your mental and physical health.

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Tuesday, March 24, 2009

Investment Options for the Recession-Weary

The media have been relentless in their discussion of the current state of the economy. Many Americans have been paying very close attention to economic news headlines, and they've been fretting about their declining investment portfolios. This painful recession has prompted many to take step that are tantamount to putting their hard-earned money in a coffee can and burying it in their backyard. Obviously, mattress-stuffing is a safe way to go, but that lazy cash will definitely lose value over time, its value eroded away by inflation. This economy has everyone worried about their investments, but there's no need to panic. There are still safe places to invest your dollars:

  • Gold - Since the global financial crisis began back in 2007, investors have been looking for safe places to grow their money. Institutional and individual investors have been buying gold, both the metal and stock in companies that mine and process gold. The price on gold will almost certainly increase into 2009 and probably into 2010 as well. The federal government has reacted to the triple threat of a) the real possibility of a deep and protracted recession b) financial market turmoil and c) the threat of deflation by dumping vast quantities of cheap cash into the American banking system, and all this cheap money will eventually make its way into the economy. When that happens, inflation will rear its ugly head, and investors will buy even more gold, as a hedge against rising prices.

  • Peer to Peer Lending Networks - Peer to Peer (P2P) Lending Networks like Lending Club have been gaining in popularity as individuals and businesses find it virtually impossible to secure financing from banks and other financial institutions. Currently, Lending Club offers investors returns in the range of 6.69% to 19.37% (the average return is 9.05%.) If you're interested in a short-term investment and you're willing to take on some risk, investing in P2P lending may be an option for you. Research the network you're planning to lend with. Find out the average loan default rate and carefully consider whether it's a system that you are comfortable with. Most lending networks allow you to provide micro-loans to borrowers, which you can use to get your feet wet.

  • High Yield Certificate of Deposit - A certificate of deposit (CD) is a type of deposit account that invariably offers a higher yield than a standard savings account. CD's are considered relatively safe and provide a decent return on your investment. Before investing in a CD, use your favorite search engines (don't rely on Google alone! Yahoo! has a great search engine too!) to research the financial institution you plan on using. If you find complaints about fraudulent activity or poor customer service or worse, then stay far away from that particular financial institution. The last thing you want is to have your money tied up in CD's provided by a fraudulent company like Stanford Financial.

    Credit unions have weathered the financial storms of recent months well. If you can join one, it's a great idea to buy a CD with a credit union (a CD at a credit union is called a share certificate.)

  • Debt Reduction - Reducing your debt should at the top of your financial to-do list regardless of the state of the economy. Carrying an oppressive debt load during a recession can bring ruin to a once thriving household, and nobody wants to be forced into moving back with their parents. If you are looking for a safe and smart place to invest your money, consider investing in your financial future by reducing your debt. Every balance you reduce or pay off will increase your monthly cash flow, and that liberated cash can be used for investing.

  • Stocks - Experienced investors know that a recession can bring great opportunities to make fast money. With real estate and stock markets plummeting globally, the biggest losers are, generally speaking, small to mid-sized companies and fast moving consumer goods (FMCG) stocks. Companies that have had a substantial market share for more than 25 years are far more likely to survive this and future recessions. It's important to diversify your portfolio and sell stocks of companies that are unlikely to survive the current crisis. Look for strength and obvious opportunities. Companies that are sitting on huge piles of cash -- $10 billion dollars or more -- are strong. If a company's stock price is cheaper than that same company's earnings, then owning a piece of that company is probably a good idea.

  • July 22, 2020 Update: Click here for an excellent list of recession-proof businesses.

    U.S. Treasuries are also extremely safe. Even if everyone in the United States failed to pay their taxes, the federal government has the power to simply print more money to meet its fiscal obligations. In the current economic environment, however, Treasury bills, notes and bonds are in high demand, which in turn has caused their yields to drop dramatically. Bottom line: there's almost no point in investing in e.g. a 12-month Treasury bill when the yield is less than 1%.
    It's always a good idea to have a strong cash position during an economic downturn, but overdoing it can seriously compromise your plans for a comfortable retirement. Investing during a recession can be tricky, but with knowledge and some courage, even the most cautious investor can invest with confidence and, most importantly, stay ahead of inflation.
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    Monday, March 23, 2009

    Advice for Those Looking to Refinance Their Car Loan

    Car Loan Refi
    Car Loan Refi
    The economic downturn has many car owners looking for ways to lower their car payments. Since the third quarter of 2008, dramatic disruptions in the nation's banking sector have prompted most banks to scale back their lending programs, or stop making loans altogether. Despite serious problems in America's financial markets, car loan refinancing is still available, and it can help consumers lower their monthly auto loan payment to a more manageable level.

    The following is a useful and timely auto loan refinance checklist:

  • Call your current lienholder, and ask how much it would cost to pay the entire loan off. Get your "payoff quote" in writing and make sure there's a specific expiration date for the quote.
  • Look over your current car loan carefully. Some lenders charge an early payment penalty, so read your agreement and make sure that you actually have the option to refinance.
  • If you're almost done paying your current loan, you might want to reconsider refinancing. In the United States, the typical car loan lasts 3 to 5 years. Trying to refinance within the last one or two years of the loan would make the payment period longer, and most likely add a few thousand dollars in interest and other charges to the cost of the vehicle.
  • Make sure your vehicle's information is accurate, so the lender can price the vehicle properly. If it is worth less than $8,000, you probably won't be able to refinance.
  • Check your credit, and make sure there are no errors on your report. Lenders will base your new interest rate on your credit history, score, and record of payments made.
  • Make sure your insurance is up to date. You won't be able to get the refinanced loan if your insurance coverage is called into question.
  • Make sure the original lien was paid. Your state's Department of Motor Vehicles should have a record of any and all liens on your vehicle. When the new loan is given, the first lienholder is supposed to give notice that their lien has been paid off.
  • When in doubt, consult a professional. Auto loan refinancing can have quite a few hidden costs, so make sure that it will really benefit you financially. Some lenders will offer a low, "teaser" interest rate, but then slap you with outrageous application fees. A professional can sit down with you and show you how to tell if you're getting a good deal.

    Auto Refinancing Scams to Watch For:
    Never pay for a vehicle appraisal. All cars decline in value over time, with very few exceptions. You don't want to have your loan application rejected because the loan amount is more than the vehicle is worth. Stay away from any lender who tells you that you have to pay for an appraisal, or any other kind of up-front fee. While there are fees involved in changing a car's title to show the new lienholder, the loan application and ensuing credit check should always be free. Be especially wary of any lender who claims they can give you more than the balance on your loan. Look over the loan paperwork very carefully, and never sign a blank contract.

    If you have unfavorable terms with your current car loan, refinancing is most likely a good idea. If you're able to refinance, cool! But don't squander the opportunity to get ahead. Pay a little more than the minimum each month, but less than what you were paying before you refinanced. Doing so will get the loan paid off sooner, and it will build car equity faster.
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    Wednesday, March 18, 2009

    Second FOMC Meeting of 2009 Adjourned: Prime Rate Holds at 3.25%

    FOMC votes to leave short-term rates unchanged; Prime Rate holds at 3.25%The Federal Open Market Committee (FOMC) of the Federal Reserve has just adjourned its second monetary policy meeting of 2009 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 Journal® Prime Rate (also known as the U.S. or Fed Prime Rate) will remain at the current 3.25%.

    Here's a clip from the FOMC press release:

    "...Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.

    In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

    In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments.

    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen..."

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    Tuesday, March 17, 2009

    Futures Market Near Certain Prime Rate Will Remain at 3.25% After Tomorrow's FOMC Meeting

    prime rate forecast The Federal Open Market Committee (FOMC) decided to turn a one-day monetary policy meeting into a two-day meeting, so we'll have an announcement on short-term interest rates tomorrow afternoon. It's a pretty safe bet that the Fed will leave short-term rates, including the Prime Rate, exactly where they are. Only 3% in the fed funds futures market are betting that the Fed will opt to raise short-term rates by at least 25 basis points (0.25 percentage point) tomorrow.


    As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 97% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at tomorrow's monetary policy meeting.

    Summary of the Latest Prime Rate Forecast:
    • Current odds that the Prime Rate will remain at the current 3.25% after tomorrow's FOMC monetary policy meeting is adjourned: 97% (very likely)
    • 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.

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    Friday, March 06, 2009

    The Unemployment Rate Is Now 8.1%; Futures Market Still Betting On No Rate Change for March 17

    prime rate forecastEarlier today, the Labor Department reported that American, non-farm payrolls shrank by 651,000 last month, while the unemployment rate jumped from 7.6% to 8.1%. As of the end of February, there were 12,500,000 unemployed persons in the United States.

    Yesterday, the Labor Department reported that there were 639,000 new claims for jobless benefits during the week that ended on February 28. During the week that ended on February 21, there were 5,106,000 people receiving an unemployment check.

    Right now, the fed funds futures market is still 94% certain that the Federal Open Market Committee (FOMC) will leave short-term rates, including the U.S. Prime Rate, at current levels when the group adjourns its next monetary policy meeting on March 17TH.

    Other economic news which likely influenced futures traders this week:

    • On Tuesday, the Bank of Canada, Canada's central bank, lowered its benchmark interest rate from 1.0% to 0.5%, which in turn caused the country's Prime Rate to drop to 2.5%, a new record low.
    • On Thursday, the European Central Bank (ECB) lowered its benchmark interest rate from 2.0% to 1.50%. The Prime Rate in the eurozone is now the lowest it's been since the ECB was founded in 1998.
    • Also on Thursday, the Bank of England (BoE), the central bank for the United Kingdom, lowered its benchmark interest rate by 50 basis points (0.50 percentage point), from 1.0% to 0.50%. This is a record low for the BoE, which has been around since 1694.
    • Bear Market Update: since closing with record highs on October 9, 2007, the Dow Jones Industrial Average (DJIA) has now lost 7,537.59 points (53.215%), while the broader S&P 500 Index has given up 881.77 points (56.338%). The record high for the DJIA is 14,164.53; for the S+P 500 Index it's 1,565.15.

      For the year, the DJIA is down 2,149.45 points (24.491%), while the S&P 500 is down 219.87 points (24.342%).
    • For a brief period during trading today, and for the first time ever, Citigroup (C) became a penny stock. Eventually, Big "C" advanced back up above the dollar mark and closed at $1.03 per share.

    As of right now, the investors who trade in fed funds futures at the Chicago Board of Trade have odds at 94% (as implied by current pricing on contracts) that the FOMC will vote to leave the benchmark target range for the Federal Funds Rate at its current level at the March 17TH, 2009 monetary policy meeting.

    Summary of the Latest Prime Rate Forecast:
    • Current odds that the Prime Rate will remain at the current 3.25% after the March 17TH, 2009 FOMC monetary policy meeting is adjourned: 94% (very likely)
    • 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.

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