Numerical

Current and Historical US Prime Rates

The COFI (11th District cost of funds index) is a widely used benchmark for adjustable-rate mortgages. Since the US prime rate is the base lending rate for banks, changes can have a large impact on consumers and businesses. The prime rate has a major impact on when people apply for home or car loans. This is because people want the lowest interest rate possible, so few apply for home or auto loans when the prime rate is high.

(rate on first of each month – for specific change dates see here)

It alters when three-quarters of these financial institutions adjust their rates. The prime rate increased since May 2022, moving in accelerator indicator tips tandem with the FOMC’s increases to the fed funds rate to combat high inflation. An interest rate is the percentage of a loan amount that a lender charges. It is the lender’s compensation, and the percentage varies with each type of loan.

The federal funds rate is the primary tool that the Federal Open Market Committee uses to influence interest rates and the economy. Changes in the federal funds rate and the discount rate also dictate changes in The Wall Street Journal prime rate, which is of interest to borrowers. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. The 11th District Cost of Funds is often used as an index for adjustable-rate mortgages. The prime rate is determined by individual banks and used as the base rate for many types of loans, including loans to small businesses and credit cards.

The Federal Funds Rate

It increases the federal funds rate to bring inflation under control. Over the next few decades, the prime rate fluctuated widely, reflecting the ups and downs of the economy and largely mirroring other benchmark interest rates. During times of economic growth, the prime rate tends to be higher, while it tends to be lower during times of recession or financial turmoil. The prime interest rate, which is also called the prime lending rate, is largely determined by the federal funds rate set by the FOMC of the Federal Reserve. The prime rate does not directly impact auto loans, but generally, it results in higher auto loan rates, making it more expensive for lenders to borrow money.

Wall Street Journal prime rate

That said, the Wall Street Journal’s prime rate is one of the most commonly cited averages — the “official source,” so to speak. The WSJ surveys 10 of the largest US banks and publishes a consensus prime based on their rates. The Journal reports this average prime rate daily, even if it hasn’t changed.

Personal and small business loans

When the prime rate is high, it often makes borrowing a lot more challenging. The Federal Open Market Committee recalculates this rate eight times yearly (roughly every six weeks) based on market conditions. The latest prime rate change is in response to the Fed’s last rate cut in 2024. You’ll also get the best rates by comparing offers from multiple lenders, maintaining a good credit score, and managing your debt. For example, if you have a 30-year mortgage, it might not move much when the prime rate decreases.

So, I’ll discuss what the prime rate is, how it’s calculated, today’s prime rate, the historical prime rate, and how it can impact your APR and your bottom line. The prime rate can indirectly impact the performance of your investments, with higher interest rates usually hurting the market. High interest rates make borrowing more expensive, decreasing cash flow and stock price declines. Of course, various other factors also impact your interest rate, such as your credit score, risk profile, type of loan, location, and the length of time it will take you to repay. The rate that an individual or business receives varies depending on the borrower’s credit history and other financial details. These rates are normally defined as an annual percentage rate (APR).

The process is a constant electronic flow of money that ensures that each bank has sufficient liquidity to operate from day to day. Every line of credit or loan has an interest rate in the form of a quoted APR (annual percentage rate), that you pay. As the prime rate fluctuates, so should your adjustable rate at the annual reset. For fixed-rate loans, your interest rate will be based on the prime rate at the start of the loan and will not change due to fluctuating prime rates. Variable-rate loans, on the other hand, will go up and down based on the prime rate. Instead, the prime closely follows the federal funds rate that the Federal Reserve sets.

Only stable businesses with the highest credit ratings qualify for the prime rate, as they’re the ones that pose the least risk of defaulting on their loans. The prime rate began to rise significantly in the 1970s as the United States experienced an economic recession and high inflation. The prime rate reached its all-time high of 21.5% in Dec. 1980, as the Federal Reserve sought to curb inflation by raising interest rates. The prime rate plus a percentage forms the base of almost all consumer and business interest rates. For example, a person with an outstanding credit score might be charged, say, prime plus 9% for a credit card, while an individual with only a good score might get a rate of prime plus 15%. The prime rate can have immense implications on your finances and it is essential for personal finance beginners to understand it before they start borrowing money.

The prime rate is a benchmark interest rate used to determine the interest charged on loans. Like other interest rates, it compensates lenders for the risks of extending credit. However, the prime rate is typically reserved for the most creditworthy borrowers, such as large corporations and high-net-worth individuals. A significant change in the prime rate often signals that the Federal Reserve has changed the federal funds rate.

The prime rate can affect many variable-rate loans and lines of credit. However, fixed-rate loans are only affected by the prime rate when they are originally borrowed, as fixed-rate loans don’t fluctuate with the changing prime rate. Remember that other factors, like credit cards and existing debt, also affect loan rates. If you’ve ever taken out a short-term loan, adjustable mortgage, private student loans, or owed money on a credit card, you’ve been impacted by the “prime rate”. The Prime Rate is the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable business customers).

Federal Reserve Economic Data

When the prime rate changes, the interest rates on loans and financial products that are based on the prime rate may also change. When the prime rate goes up, so does the cost to obtain small business loans, lines of credit, car loans, mortgages, and credit cards. Rate posted by a majority of top 25 (by assets in domestic offices) insured U.S.-chartered commercial banks. Prime is one of several base rates used by banks to price short-term business loans.For questions on the data, please contact the data source.

What Loans Are Not Affected by a Change in the Prime Rate?

As such, the US prime rate and federal funds rate are very closely correlated. When the prime rate changes, the effects ripple out to regular borrowers even though only the most stable corporations with sterling credit scores generally qualify. The prime rate can impact rates on personal loans, small business loans, credit cards, mortgages, and more. The prime rate, as reported by The Wall Street Journal’s bank survey, is among the most widely used benchmark in setting home equity lines of credit and credit card rates. It is in turn based on the federal funds rate, which is set by the Federal Reserve.

• When the prime rate changes, it affects individuals’ and businesses’ savings rates and ability to borrow.
• This is because people want the lowest interest rate possible, so few apply for home or auto loans when the prime rate is high.
• Prime is one of several base rates used by banks to price short-term business loans.For questions on the data, please contact the data source.
• It is in turn based on the federal funds rate, which is set by the Federal Reserve.

While many banks set their prime rate according to the federal funds rate, there’s no universal prime rate. When you see a reference to “the prime rate,” it usually reflects an average rate across financial institutions. Commercial banks use the federal funds rate when charging each other for overnight loans. In turn, these banks use the same rate as the starting point in setting the prime rate for their best-qualified clients. The fed funds rate is the overnight rate banks and other financial institutions use to lend money to each other.

The prime interest rate is the percentage that U.S. commercial banks charge their most creditworthy customers for loans. Like all loan rates, the prime interest rate is derived from the federal funds’ overnight rate, set by the Federal Reserve at meetings held eight times a year. The prime interest rate is the benchmark banks and other lenders use when setting their interest rates for every category of loan from credit cards to car loans and mortgages. The prime rate is an interest rate determined by individual banks.

• The fixed rate used varies by the type of loan and each individual lender.
• You’ll also get the best rates by comparing offers from multiple lenders, maintaining a good credit score, and managing your debt.
• The fed funds rate is the overnight rate banks and other financial institutions use to lend money to each other.
• The COFI (11th District cost of funds index) is a widely used benchmark for adjustable-rate mortgages.
• The Prime Rate is the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable business customers).

Banks make adjustments to the prime rate at the same time; although the rate does not adjust on any regular basis. In recent history, the Prime Interest Rate has been set at 3% over the high end of the range for Fed Funds. The prime rate changes when banks adjust their rates in response to economic health or a shift in the federal funds rate set by the Federal Reserve. Depending on economic conditions, the prime rate may not change for years or multiple times in one year.

GDP Gross Domestic Product Simply Explained

GDP focuses on market transactions with observable prices and monetary exchanges. Household activities like childcare, cooking, and home maintenance lack market prices, making standardised measurement challenging. Whilst these activities create real value, their exclusion helps maintain GDP consistency and comparability across countries. This limitation has prompted development of alternative measures attempting to capture unpaid labour contributions. Government bond yields typically rise when GDP exceeds forecasts, as investors anticipate higher inflation and potential interest rate increases.

• If a GDP release reflects what analysts and investors have already estimated, the market might not react much.
• GDP per capita (also called GDP per person) is used as a measure of a country’s standard of living.
• This means that it factors out changes in price levels to measure changes in actual output.
• They liken the ability of GDP to give an overall picture of the state of the economy to that of a satellite in space that can survey the weather across an entire continent.
• Tracking GDP over time can provide a sense of long-term trends in the economy.

Understanding Nominal and Real GDP Differences

The real GDP of the U.S. or any other nation is fluid, with new figures released monthly. To estimate real GDP, the BEA constructs chain indexes that allow it to adjust the value of the goods and services to the change in prices of those goods and services. The U.S. was the world’s largest economy in 2024 according to the International Monetary Fund (IMF).

GDP data nuts and bolts

For many years in the 1980s and 1990s, annual GDP growth of 4% or higher was common. Generally, 3% GDP growth is considered relatively strong, but anything under 2% is seen as soft. If you think of all this in dollar terms and on a national scale, you’re looking at a colossal amount of money. The BoE targets 2% inflation whilst considering GDP growth sustainability. Persistent GDP weakness below trend (around 1.5-2% for the UK) influences the Monetary Policy Committee toward accommodative stances. Accordingly, this article explores the meaning of GDP, the different types of GDP, how to calculate GDP, and the effects of the upcoming US GDP releases on the market.

Bond Market Reactions

Gross domestic product measures the total value of all goods and services produced in the United States. Tracking GDP over time can provide a sense of long-term trends in the economy. GDP per capita divides a country’s total GDP by its population, measuring average economic output per person. This metric provides insights into living standards and productivity levels more effectively than total GDP alone. For example, Luxembourg has a relatively small total GDP but the Biggest stock gainers of all time world’s highest GDP per capita at approximately $135,380, indicating exceptional individual prosperity.

The Expenditure Approach

• As an investor in a rising GDP environment, your portfolio might benefit from loading up on high-growth stocks rather than bonds.
• GDP reports, published by the BEA, are estimated on a quarterly and annual basis, although statistics are released each month.
• Cyclical sectors (manufacturing, construction, discretionary retail) thrive during expansion, whilst defensive sectors (utilities, healthcare, consumer staples) provide stability during slowdowns.
• For many years in the 1980s and 1990s, annual GDP growth of 4% or higher was common.

The ways GDP may change over time help to assess an economy’s health and inform policy and investment decisions. However, it is not a sole indicator, as policy leaders look at numerous economic indicators. The consumption and investment components of the GDP tend to be more reliable economic indicators than government spending or net exports.

GDP formula

You get different figures depending on which method you use because there is never enough data to build a picture of the economy that is 100% complete. The expenditure approach is particularly common and easy to understand. It adds up all expenditure that arises from investments etc. in an economy.

Economists generally view 2-3% annual GDP growth as optimal for developed economies, balancing expansion with inflation control. Growth consistently above 4% risks overheating and excessive inflation, whilst rates below 2% suggest underperformance or stagnation. Emerging markets often target higher rates (5-7%) due to catch-up potential and demographic advantages. Context matters, post-recession recoveries may temporarily achieve higher growth as economies rebound.

GDP became a standardized measure of a country’s economy following the Bretton Woods Conference. “Gross” (in “Gross Domestic Product”) indicates that products are counted regardless of their subsequent use. A product can be used for consumption, for investment, or to replace an asset.

Investors juggle dozens of monthly data releases, but gross domestic product (GDP) is “king of the hill” in terms of measuring economic health. At a high level, GDP reports tell you if the U.S. economy is expanding or contracting and why. Companies and the Federal Reserve often base decisions on GDP trends, so as an investor, you should understand the data and be ready to adjust your portfolio accordingly. GDP measures production within a country’s borders regardless of ownership, whilst GNP tracks production by a nation’s residents regardless of location. If a British company operates factories in Germany, that production counts toward German GDP but British GNP.

A high confidence level indicates that consumers are willing to spend, while a low confidence level reflects uncertainty about the future and an unwillingness to spend. However, the real GDP (expressed in 2015 dollars) would only be $75 billion, revealing that an overall decline in real economic performance actually occurred during this time. Gross Domestic Product (GDP) measures the total value of everything a country produces in goods and services over a set period. BEA’s GDP estimates omit illegal activities, care of own children, and volunteer work for lack of reliable data.

It’s similar to a company’s price-to-sales ratio, offering a snapshot of whether an equity market appears over- or undervalued. Real and nominal GDP are two different ways to measure the gross domestic product of a nation. Nominal GDP measures gross domestic product in current dollars; unadjusted for inflation. Real GDP sets a fixed currency value, thereby removing any distortion caused by inflation or deflation.

GDP may be adjusted for inflation and population to provide deeper insights. The Consumer Price Index (CPI) measures price changes for consumer goods, whilst GDP captures total economic output. Strong GDP growth without corresponding inflation suggests healthy, sustainable economic expansion.