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September 20th, 2007 12:13 PM

Prime Rate moves in lockstep with the Fed Fuds 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 Bill Murphy on September 20th, 2007 12:13 PMPost a Comment (0)

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