Home : Blogs : Ilyce N. Powell, CMPS™ - Certified Mortgage Planning Specialist : Ilyce's Views You Can Use

How Prime Rate Relates to the Fed Funds Rate

Prime Rate is currently 7.750%.

Prime Rate is the "shorthand" name for the Wall Street Journal Prime Rate, a variable interest rate that is used in pricing many types of consumer loans.

These loans include:

Home equity lines of credit
Credit card loans
Auto loans

Prime Rate's variable nature is tied to the Fed Funds Rate. Prime Rate moves in tandem with the FFR and is always three percentage points higher.

So, after the FFR's 0.500% drop Tuesday, consumer loans tied to Prime Rate dropped by 0.500%, too.

Prime Rate was 4.000% in June 2004 before the Federal Reserve started a string of 17 rate hikes to 8.250%. Tuesday's drop is the first reversal since the rate hikes began.

Posted by Ilyce N. Powell, CMPS™ - Certified Mortgage Planning Specialist on 09/20/2007 09:07 AM

Comments (7)

business, consumer education, education, finance, interest rates, mortgage, federal funds rate, economy, mortgage market

This post has been included in Maryland Information

7 Comments on How Prime Rate Relates to the Fed Funds Rate

SEP

2007

Ilyce - Here's hoping the bigger than hoped for cut will spur some buyer activity!

Ilyce: Good post. Even though we in the mortgage industry take this knowledge as second hand, that was a succinct explanation for realtors and the general public.

Thanks Ilyce---for some reason I was getting the Feds discount rate mixed up with the Prime rate.

many credit cards have limits for rate reduction and may not necessarily go down with the fed cut.

SEP

2007

Thank you for the "short hand rate" as I confuse them!

SEP

2007

Ilyce: Thank you very much for one of the most simple and concise explanations of the relationsip between the Fed Funds Rate and the Prime Rate. That was well done. Karen Anne

Everyone - Thanks so much for your comments and encouragement. See you on the next blog!

Leave a response…

Name:

Email:
(optional)

Comment:

What does the graphic say?