Odds Now At 70% (Somewhat Likely) The U.S. Prime Rate Will Continue at 7.50% After the May 7, 2025 FOMC Monetary Policy Meeting

Prime Rate Prediction

Prime Rate Forecast

As of right now, our odds are at 70% (somewhat likely) the Federal Open Market Committee (FOMC) of the Federal Reserve will vote to leave the benchmark target range for the fed funds rate (TRFFR) at 4.25% - 4.50% at the May 7^TH, 2025 monetary policy meeting, leaving the U.S. Prime Rate at the current 7.50%.

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Tariff Worries

The NASDAQ Composite Index ended the week at 15,587.79, down 22.73% from its December 16, 2024 record-high of 20,173.89: 🐻 Bear market.📉

Meanwhile, the DJIA and S & P 500 Indexes slipped closer to bear-market territory; both ended the week in the correction zone.

Investors have responded to the current administration's expanding tariff war.

Some A+ insights from a recent Fortune.com article:

"...The biggest winners from the tariffs, [Ford CEO Jim Farley] suggested, won’t be domestic automakers but Asian rivals that would face little additional impact..."

"...With 25% increases in the cost of parts, inflation would surge in maintenance and repair and insurance, which vehicle owners are already struggling to handle..."

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• And here's a detailed "Tariff Timeline" compiled by the superlative folks at USA Today.
  

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DOGE Dismissals

Job cuts surged last month.

Total layoffs rose from a massive 172,017 cuts during February, to a whopping 275,240 during March of this year...😓

 

DOGE-related terminations were 216,670... ▽ CHARTS ▽

CHART: Job Cuts - March 2025 UPDATE
Copyright © 2025 Challenger, Gray and Christmas, Inc.

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CHART: Job Cuts by Reason - March 2025 UPDATE
Copyright © 2025 Challenger, Gray and Christmas, Inc.

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Stay tuned...

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The United States Prime Rate was lowered to the current 7.50% on December 18, 2024.

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SUMMARY

• Current odds the U.S. Prime Rate will continue at the current 7.50% after the May 7^TH, 2025 FOMC monetary policy meeting: 70% (somewhat likely.)

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Odds Now At 90% (Likely) The U.S. Prime Rate Will Continue at 7.50% After the May 7, 2025 FOMC Monetary Policy Meeting

Prime Rate Prediction

Prime Rate Forecast

As of right now, our odds are at 90% (likely) the Federal Open Market Committee (FOMC) of the Federal Reserve will vote to leave the benchmark target range for the fed funds rate (TRFFR) at 4.25% - 4.50% at the May 7^TH, 2025 monetary policy meeting, leaving the U.S. Prime Rate at the current 7.50%.

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Tariffs and Job Cuts

Here's a clip from the February, 2025 Leading Economic Index:

"...Given substantial policy uncertainty and the notable pullback in consumer sentiment and spending since the beginning of the year, we currently forecast that real GDP growth in the US will slow to around 2.0% in 2025.'..."

Two percent is too generous.

The repercussions from #POTUS47's tariffs, and layoffs from DOGE, have yet to be fully felt in the American economy.

The Federal Reserve's estimate of a +1.7% change in real GDP for 2025 is a bit more realistic.

The www.FedPrimeRate.com estimate for 2025 real GDP: Flat to +0.7%.

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Meanwhile, the tech-heavy NASDAQ Composite Index ended the week in correction territory, again.

 

Stay tuned...

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The United States Prime Rate was lowered to the current 7.50% on December 18, 2024.

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SUMMARY

• Current odds the U.S. Prime Rate will continue at the current 7.50% after the May 7^TH, 2025 FOMC monetary policy meeting: 90% (likely.)

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Odds Now At 95% (Very Likely) The U.S. Prime Rate Will Continue at 7.50% After the March 19, 2025 FOMC Monetary Policy Meeting

Prime Rate Prediction

Prime Rate Forecast

As of right now, our odds are at 95% (very likely) the Federal Open Market Committee (FOMC) of the Federal Reserve will vote to leave the benchmark target range for the fed funds rate (TRFFR) at 4.25% - 4.50% at the March 19^TH, 2025 monetary policy meeting, leaving the U.S. Prime Rate at the current 7.50%.

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Consumer Price Index (CPI) at 3.00% Last Month (Y-o-Y).

And, year-on-year, the Core CPI reading for January, 2025 was 3.26%!

So, why is inflation becoming a problem again?

Tariffs? Not likely.  Not yet anyway.

• The likely culprit = the supply of money in the American economy: M2.

Here's a chart from 2015 thru the end of 2024...👇

CHART: www.FedPrimeRate.com
 Monthly M2 Money Supply
 2015 thru 2024

Here is how the Fed defines M2 Money:

 

"...Beginning May 2020, M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail money-market funds (MMFs) less IRA and Keogh balances at MMFs.

Seasonally adjusted M2 is constructed by summing savings deposits (before May 2020), small-denomination time deposits, and retail MMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1..."

Stay tuned...

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The United States Prime Rate was lowered to the current 7.50% on December 18, 2024.

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SUMMARY

• Current odds the U.S. Prime Rate will hold at the current 7.50% after the March 19^TH, 2025 FOMC monetary policy meeting: 95% (very likely.)

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Odds Now At 80% (Likely) The U.S. Prime Rate Will Continue at 7.50% After the March 19, 2025 FOMC Monetary Policy Meeting

Prime Rate Prediction

Prime Rate Forecast

As of right now, our odds are at 80% (likely) the Federal Open Market Committee (FOMC) of the Federal Reserve will vote to leave the benchmark target range for the fed funds rate (TRFFR) at 4.25% - 4.50% at the March 19^TH, 2025 monetary policy meeting, leaving the U.S. Prime Rate at the current 7.50%.

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Housing Inflation & Affordability

From the good folks at Bank of America®, the following is a quote from a June, 2024 CNN article:

"Economists at Bank of America warned this week that the U.S. housing market is 'stuck and we are not convinced it will become unstuck' until 2026 -- or later..."

Prescient words, as evidenced by the latest inflation data from the Commerce Department.  The housing affordability situation keeps getting worse 👇📈👇 :

 

www.FedPrimeRate.com: Changes in Monthly
Consumer Spending - December 2024 UPDATE

Scary news, but there is some hope.

Since hitting a record high of $426,900 back in June of last year, the cost for a used home has been easing, according to the superlative folks at the National Association of REALTORS®.  During December of 2024, the median cost for a previously owned home was $404,400.

Stay tuned...

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The United States Prime Rate was lowered to the current 7.50% on December 18, 2024.

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SUMMARY

• Current odds the U.S. Prime Rate will hold at the current 7.50% after the March 19^TH, 2025 FOMC monetary policy meeting: 80% (likely.)

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Odds Now At 90% (Likely) The U.S. Prime Rate Will Hold at 7.50% After the January 29, 2025 FOMC Monetary Policy Meeting

Prime Rate Prediction

Prime Rate Forecast

As of right now, our odds are at 90% (likely) the Federal Open Market Committee (FOMC) of the Federal Reserve will vote to keep the benchmark target range for the fed funds rate (TRFFR) at 4.25% - 4.50% at the January 29^TH, 2025 monetary policy meeting, leaving the U.S. Prime Rate at the current 7.50%.

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The American Consumer

Is the American consumer ready to keep the American economy going strong in 2025?

• Here's a quote from the latest (December) Index of Consumer Sentiment (ICS):

"...Broadly speaking, consumers believe that the economy has improved considerably as inflation has slowed, but they do not feel that they are thriving..."

Month-on-month, the ICS was +3.06%, while year-on-year it was +6.07%.

• Consumer Confidence declined by 7.18% this month (December, 2024.)  Here's a clip:
  
  

  "...Consumers became a bit less bullish about the stock market in December: 52.9% expected stock prices to increase over the year ahead, down from a record high of 57.2% in November. Also, 25% of consumers expected stock prices to decline, up from 21.7%. The share of consumers expecting higher interest rates over the next 12 months ticked up to 48.5% but remained near recent lows. The share expecting lower rates eased to 29.3% -- down from recent months but still quite high..."

Stay tuned...

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The United States Prime Rate was lowered to the current 7.50% on December 18, 2024.

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SUMMARY

• Current odds the U.S. Prime Rate will hold at the current 7.50% after the January 29^TH, 2025 FOMC monetary policy meeting: 90% (likely.)

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Odds Now At 95% (Very Likely) The U.S. Prime Rate Will Be Cut to 7.50% at the December 18, 2024 FOMC Monetary Policy Meeting

Prime Rate Prediction

Prime Rate Forecast

As of right now, our odds are at 95% (very likely) the Federal Open Market Committee (FOMC) of the Federal Reserve will vote to lower the benchmark target range for the fed funds rate (TRFFR) by 0.25 percentage point (25 basis points [bps]) at the December 18^TH, 2024 monetary policy meeting.


A 25 bps cut would cause Prime to decrease, from the current 7.75%, to  7.50%. 

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• Year-on-year (Y-O-Y), the  CORE Consumer Price Index edged lower, from 3.33% during October, to 3.32% during November, 2024.
  
  
• Y-O-Y, from September to October, 2024, the CORE PCE Price Index rose from 2.7% to 2.8%.
  
  
  
• On the jobs front, Y-O-Y, the U-3 (Headline) Unemployment Rate ticked up, from 4.1% during October, 2024, to 4.2% during November.
  
  It was 3.7% during November, 2023.
  

• Y-O-Y, the reading on Average Hourly Earnings was +4.03%, while Average Weekly Earnings was +3.73%.

Stay tuned...

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The United States Prime Rate was lowered to the current 7.75% on November 7, 2024.

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SUMMARY

• Current odds the U.S. Prime Rate will be cut to 7.50% at the December 18^TH, 2024 FOMC monetary policy meeting: 95% (very likely.)
  

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Federal Open Market Committee (FOMC) Monetary Policy Meeting Schedule for 2025 & 2026

👇: Here's the Federal Open Market Committee (FOMC) monetary policy meeting schedule for 2025 and 2026.

Why is this schedule important to you? Because it's at these monetary policy meetings that the FOMC votes on whether to raise, lower or make no changes to the target range for Fed Funds Target Rate, and when the Fed Funds Target Rate changes, the United States Prime Rate (also known as the Fed Prime Rate) will also change (how the United States Prime Rate works):

======👇2025👇======

• January 29, 2025
  
  
• March 19, 2025
  
  
• May 7, 2025
  
  
• June 18, 2025
  
  
• July 30, 2025
  
  
• September 17, 2025
  
  
• October 29, 2025
  
  
• December 10, 2025

======👇2026👇======

• January 28, 2026
  
  
• March 18, 2026
  
  
• April 29, 2026
  
  
• June 17, 2026
  
  
• July 29, 2026
  
  
• September 16, 2026
  
  
• October 28, 2026
  
  
• December 9, 2026

• January 27, 2027

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Odds Now At 60% (On The Fence) The U.S. Prime Rate Will Be Cut to 7.50% at the December 18, 2024 FOMC Monetary Policy Meeting

Prime Rate Prediction

Prime Rate Forecast

As of right now, our odds are at 60% (on the fence) the Federal Open Market Committee (FOMC) of the Federal Reserve will vote to lower the benchmark target range for the fed funds rate (TRFFR) by 0.25 percentage point (25 basis points [bps]) at the December 18^TH, 2024 monetary policy meeting.


A 25 bps cut would cause Prime to decrease, from the current 7.75%, to  7.50%. 

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• Year-on-year (Y-O-Y), the CORE PCE Price Index moved sideways from August to September -- 2.7% to 2.7%.
  
  
• Y-O-Y, from August to September, the PCE Price Index eased, from 2.3% to 2.1%.

Stay tuned...

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The United States Prime Rate was lowered to the current 7.75% on November 7, 2024.

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SUMMARY

• Current odds the U.S. Prime Rate will be cut to 7.50% at the December 18^TH, 2024 FOMC monetary policy meeting: 60% (On The Fence.)
  

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Odds Now At 99% (VERY LIKELY) The U.S. Prime Rate Will Be Cut By At Least 25 Basis Points (0.25 Percentage Point) at the November 7, 2024 FOMC Monetary Policy Meeting

Prime Rate Prediction

Prime Rate Forecast

As of right now, our odds are at 99% (very likely) the Federal Open Market Committee (FOMC) of the Federal Reserve will vote to lower the cardinal target range for the fed funds rate (TRFFR) by at least 0.25 percentage point (25 basis points [bps]) at the November 7^TH, 2024 monetary policy meeting.

A 25 bps cut would cause Prime to decrease, from the current 8.00%, to  7.75%. 

A 50 bps cut would lower the TRFFR to a range of 4.25% - 4.50%, and would result in a Prime Rate of 7.50%, a level not seen since December of 2022.

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• Year-on-year (Y-O-Y), the Core PCE Price Index rose from +2.6% during July, to +2.7% during August, 2024.

Y-O-Y, the Core CPI for August, 2024 came in at +3.197%.

Stay tuned...

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The United States Prime Rate was lowered to the current 8.00% on September 18, 2024.

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SUMMARY

• Current odds the U.S. Prime Rate will be cut to 7.75% or lower at the November 7^TH, 2024 FOMC monetary policy meeting: 99% (very likely.)
  

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Odds Now At 95% (VERY LIKELY) The U.S. Prime Rate Will Be Cut By At Least 25 Basis Points (0.25 Percentage Point) at the September 18, 2024 FOMC Monetary Policy Meeting

Prime Rate Prediction

Prime Rate Forecast

As of right now, our odds are at 95% (very likely) the Federal Open Market Committee (FOMC) will vote to LOWER the benchmark target range for the fed funds rate (TRFFR) by at least 25 basis points (bps) at the September 18^TH, 2024 monetary policy meeting.

If a 25 bps cut happens, the United States Prime Rate (a.k.a Fed Prime Rate) would decline from the current 8.50%, to  8.25%. 

There is also a very real chance that the FOMC will cut by 50 bps next month, setting the TRFFR at 4.75% - 5.00%.  This would result in a U.S. Prime Rate of 8.00%, a level not seen since March of 2023.

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Year-on-year (Y-O-Y), the Core PCE Price Index for June, 2024 came in at +2.6%.

Y-O-Y, the Core CPI for June, 2024 came in at +3.27%.

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Eurodollar LIBOR Has An Excellent Record of Predicting
Recessions for The American Economy
  

Over the years, U.S. dollar (Eurodollar) LIBOR rates have been good at predicting what's in the economic offing for the American economy.

Right now, there is an inversion in USD LIBOR rates.  Current rates (August 2, 2024) are as follows:

• 1-Month LIBOR: 5.46652%
  
• 3-Month LIBOR: 5.48934%
  
• 6-Month LIBOR: 5.43589%

The 6-month rate is lower than the 3-month rate, which = economic concerns ahead!  

Is LIBOR a better prognosticator than the Treasury yield curve or the LEI?  Our thesis = 👍 Yes! 🙌

• Meanwhile, tensions in the Middle East have become so volatile that evacuation orders have been issued.

Stay tuned...

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The United States Prime Rate was raised to the current 8.50% on July 26, 2023.

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NB: U.S. Prime Rate = (The Fed Funds Target Rate + 3)

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Current Odds

• Current odds the U.S. Prime Rate will be cut to 8.25% or lower at the September 18^TH, 2024 FOMC monetary policy meeting: 95% (very likely.)
  

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Odds Now At 90% (VERY LIKELY) The U.S. Prime Rate Will Remain at 8.50% After The July 31, 2024 FOMC Monetary Policy Meeting

Prime Rate Prediction

Prime Rate Forecast

As of right now, our odds are at 90% (very likely) the Federal Open Market Committee (FOMC) will vote to keep the benchmark target range for the fed funds rate at  5.25% - 5.50% at the July 31^ST, 2024 monetary policy meeting, with the United States Prime Rate (a.k.a Fed Prime Rate) holding at 8.50%.

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Futures Market Has No Idea Where Where Short-Term Rates Will Be at The End of This Year
  

Current Interest-Rate-Futures Market Predictions for
the December 18, 2024 FOMC Policy Meeting

Nice △pyramid△ this 👆🔺👆 chart is, n'est-ce pas?

Right now, a 44% majority believe that the Fed will have cut rates by 50 basis points (0.50 percentage point) by the end of 2024.  If they're right, that would put the U.S. Prime Rate at an even 8.00% at year-end.

• From the May Jobs Report: Year-on-year (Y-O-Y), Average Weekly Earnings advanced by +4.08%, while the reading on Average Weekly Earnings was +3.78%
  
  
  • The U-3 (official) jobless rate edged higher, from 3.9% during April, to 4.0% during May, 2024.
  
  
• Y-O-Y, the Core CPI for May, 2024 came in at +3.42%.
   

Stay tuned...

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The United States Prime Rate was raised to the current 8.50% on July 26, 2023.

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NB: U.S. Prime Rate = (The Fed Funds Target Rate + 3)

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Current Odds

• Current odds the U.S. Prime Rate will remain at 8.50% after the July 31^ST, 2024 FOMC monetary policy meeting: 90% (very likely.)
  

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Odds Now At 90% (VERY LIKELY) The U.S. Prime Rate Will Remain at 8.50% After The June 12, 2024 FOMC Monetary Policy Meeting

Prime Rate Prediction

Prime Rate Forecast

As of right now, our odds are at 90% (very likely) the Federal Open Market Committee (FOMC) will vote to keep the benchmark target range for the fed funds rate at  5.25% - 5.50% at the June 12^TH, 2024 monetary policy meeting, with the United States Prime Rate (a.k.a Fed Prime Rate) holding at 8.50%.

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Jobs + Wages Weakening: Exactly What The Fed Wants
  

• 
  The number of jobless people per job opening crept up during March, 2024 (graphic.)  A lagging indicator, but nevertheless: further proof that the Fed's mission of killing jobs, and keeping short-term interest rates elevated, to tame inflation, is working.

• From the April Jobs Report: A rare negative month-on-month reading for Average Weekly Earnings (-0.09%.)

Stay tuned...

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The United States Prime Rate was raised to the current 8.50% on July 26, 2023.

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NB: U.S. Prime Rate = (The Fed Funds Target Rate + 3)

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Current Odds

• Current odds the U.S. Prime Rate will remain at 8.50% after the June 12^TH, 2024 FOMC monetary policy meeting: 90% (very likely.)
  

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Odds Now At 95% (VERY LIKELY) The U.S. Prime Rate Will Remain at 8.50% After The May 1, 2024 FOMC Monetary Policy Meeting

Prime Rate Prediction

Prime Rate Forecast

As of right now, our odds are at 95% (very likely) the Federal Open Market Committee (FOMC) will vote to keep the benchmark target range for the fed funds rate at  5.25% - 5.50% at the May 1^ST, 2024 monetary policy meeting, with the United States Prime Rate (a.k.a Fed Prime Rate) holding at 8.50%.

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Latest on Disinflation
 

• Year-on-year (Y-O-Y), the Core Consumer Price Index (CPI) slipped from 3.86% during January, to 3.75% during February, 2024. Good disinflation news...but not great.

• Y-O-Y, The Core PCE Price Index moved sideways, remaining at 2.8% from January to February of this year. With food + energy added to the mix, the PCE Price Index edged in the wrong direction: up, from 2.4% to 2.5%.

Wages

• Y-O-Y, average hourly + average weekly earnings advanced in sync, both by 4.14%, according to last Friday's Employment Situation Report for March, 2024.

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And so, based on these and other economic data, the Fed is likely to do nothing with the benchmark fed funds target rate on May 1^ST, 2024, which would mean Prime staying where it is until the following meeting and decision on short-term rates (June 12, 2024.)

Stay tuned...

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The United States Prime Rate was raised to the current 8.50% on July 26, 2023.

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NB: U.S. Prime Rate = (The Fed Funds Target Rate + 3)

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Current Odds

• Current odds the U.S. Prime Rate will remain at 8.50% after the May 1^ST, 2024 FOMC monetary policy meeting: 95% (very likely.)
  

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