The major driving factor for the prime rate is the US federal funds target rate, which is set by the Federal Reserve. This rate is what the US government uses to control bank lending rates and, as such, influence the US economy. Then, banks such as JPMorgan Chase, Bank of America, and Wells Fargo set their prime rate, usually about 3 percentage points higher than the federal funds rate. Once the major banks set their prime rate, many of the medium to small banks typically follow.

Mortgages

“Credit cards would be the prime rate plus 10% to 15% as they are considered risky for some borrowers.” “The best and most creditworthy customers are usually corporate clients.” The prime rate increased since May 2022, moving in tandem with the FOMC’s increases to the fed funds rate to combat high inflation. On Dec. 18, 2024, the Federal Open Market Committee (FOMC) voted to lower the target range for the federal funds rate to 4.25%-4.50% (a decrease of 0.25 percentage points from the previous month. The Federal Reserve on Wednesday lowered its benchmark interest rate by 0.25 percentage points — its first cut since December — as the U.S. grapples with a stalling labor market and slower economic growth.

When does the prime rate change?

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 prime interest rate is the percentage that U.S. commercial banks charge their most Fundamental analysis of forex creditworthy customers for loans.

It is in turn based on the federal funds rate, which is set by the Federal Reserve. The COFI (11th District cost of funds index) is a widely used benchmark for adjustable-rate mortgages. Any existing loan or line of credit that has a fixed interest rate is not affected by a change in the prime rate. This includes any student loans, mortgages, savings accounts, and credit cards that are issued with fixed rates rather than variable rates. The Fed cut reduces the federal funds rate — what banks charge each other for short-term loans — to between 4% and 4.25%, down from its prior range of 4.25% to 4.5%. The last time the central bank eased borrowing costs was in December 2024, when it also trimmed rates by a quarter of a percentage point.

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

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. The prime rate is the interest rate that commercial banks charge creditworthy customers and is based on the Federal Reserve’s federal funds overnight rate. When the prime rate goes up, so does the cost to obtain small business loans, lines of credit, car loans, mortgages, and credit cards.

• “The prime rate is used to set the rates for loans and credit card balances, plus a risk factor increase,” Niedermeyer says.
• This prime rate is derived from the Federal Funds effective rate, which is the interest rates at which banks lend money to each other.
• Short-term interest rates may be lower, but what about long-term mortgage rates?
• The highest prime rate ever recorded in the U.S. was 21.5%, which was reached in December 1980.
• All of them determine the present APR that you pay on that loan by taking a fixed rate (as specified in your contract) and adding the prime rate to it.
• “Concerns for the labor market’s health are rising,” said Cory Stahle, economist in the Indeed Hiring Lab, in a statement after the Fed’s decision.

When economic growth slows down or starts to recede, the federal funds rate is lowered to spur economic growth. On the other hand, when the economy grows too fast, the Fed raises the rate to stave off inflation. It was cut by 0.25 percentage points after the FOMC reduced the target range for the federal funds rate to 4.25%-4.50% in December 2024. The rates individual borrowers are charged are based on their credit scores, income, and current debts.

• A snapshot of the prime rate can be found on the Federal Reserve’s website.
• She has denied committing fraud and challenged Mr. Trump’s authority to fire her, with an appeals court ruling Monday that Cook can keep her job.
• Any unsecured loan (like a credit card) is charged interest at a higher rate than a secured loan, such as an auto loan or a mortgage.

Federal Reserve meeting begins as pressure mounts for interest rate cuts

She has denied committing fraud and challenged Mr. Trump’s authority to fire her, with an appeals court ruling Monday that Cook can keep her job. At the same time, Powell said the Fed now views the pass-through of the Trump administration’s tariff as being “smaller and slower” than central bank officials had expected earlier this year. “We continue to expect inflation to move up, maybe not as much as we would have a few months ago,” he said. “Concerns for the labor market’s health are rising,” said Cory Stahle, economist in the Indeed Hiring Lab, in a statement after the Fed’s decision. “Unemployment and layoffs are relatively stable at historically low levels, which is encouraging, but they are unlikely to stay that way if labor market conditions deteriorate further.”

How does the prime rate change?

Here’s the prime rate today in 2025 and the Federal Reserve’s influence on today’s prime rate. Powell noted that a quarter-point cut isn’t likely to make a huge difference to the economy, but added, “You have to look at the path” of future cuts expected later this year and in 2026. “It starts with a 25 basis point cut — it’s not just one action,” he said. To that end, he has sought to remove Fed Governor Lisa Cook from her seat on the central bank’s board, alleging that she engaged in mortgage fraud.

Current and Historical US Prime Rates

“The overall job-finding rate is very, very low, but the layoff rate is also very low,” Powell noted. “The concern is that if you start to see layoffs, the people who are laid off, there won’t be a lot of hiring going on.” Official websites use .govA .gov website belongs to an official government organization in the United States.

“In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen,” Powell said in a press conference following the Fed’s two-day meeting. Short-term interest rates may be lower, but what about long-term mortgage rates? See our latest Two-Month Mortgage Rate Forecast for our year-closing expectations. The Federal Open Market Committee recalculates this rate eight times yearly (roughly every six weeks) based on market conditions.

Financial institutions like banks, brokerages, and insurance companies have increased cash flow since borrowers are charged more. The latest prime rate change is in response to the Fed’s last rate cut in 2024. 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.

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You’ll also get the best rates by comparing offers from multiple lenders, maintaining a good credit score, and managing your debt. Fluctuations in the prime rate can reflect how tough or relaxed lenders’ financing standards and requirements are. When the prime rate is high, it often makes borrowing a lot more challenging. The goal of the Federal Reserve is to encourage or discourage borrowing by businesses and consumers. The prime rate is reserved for only the most qualified customers, those who pose the least amount of default risk.