United States Prime Rate

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

Wednesday, January 26, 2011

First FOMC Meeting of 2011 Adjourned: U.S. 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 first monetary policy meeting of 2011 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 U.S. Prime Rate (also known as the WSJ, national or Fed Prime Rate) will remain unchanged at the current 3.25%.

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

"...Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, while investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen..."

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Saturday, January 01, 2011

Futures Market 100% Certain U.S. Prime Rate Will Remain At 3.25% Into May of 2011

prime rate forecastThe next three Federal Reserve (Fed) monetary policy meetings are January 26, March 15 and April 27. As of today, the fed funds futures market is 100% certain that the Fed will do nothing with short-term rates at all 3 meetings. Translation: the US Prime Rate is extremely likely to remain at the current 3.25% well into spring. Great news for borrowers and those with existing debt tied to Prime. Unfortunately, however, it's also a very strong indication that the economy isn't going to improve in a significant way before summer 2011.

Stocks did OK last year, but the Bear is still very much with us.

For 2010, the Dow Jones Industrial Average (DJIA) enjoyed a yearly gain of 1,149.46 points (+11.023%) to finish @ 11,577.51, while the broader S&P 500 Index added 142.54 points (+12.783%) to finish @ 1,257.64.

Not bad, right? OK, now for the reality check.

Since closing with record highs on October 9, 2007, the DJIA has shed 2,587.02 points (-18.264%), while the S&P 500 Index has shaken off 307.51 points (-19.647%). The record high for the DJIA is 14,164.53; for the S+P 500 Index it's 1,565.15.

On December 31, 1999, the S+P 500 Index closed @ 1,469.25, and the DJIA ended the day @ 11,497.12.

My apologies for the buzzkill! Actually, the above numbers aren't so bad when you consider how they looked at our last bear market update.

All the best for 2011!

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 26TH, March 15TH and April 27TH 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 26TH, March 15TH and April 27TH 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.

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