On Wednesday, February 1, 2023, the Federal Reserve Board raised the Federal Funds rate by 0.25%. In turn, banks typically follow by raising their “prime lending rates” by the same 0.25%, which would make the new “Prime Rate” 7.75%.
By comparison, the Prime Rate last year at this time was 3.25%. The Federal Reserve (the “Fed”) has been aggressive in raising interest rates in an effort to reduce inflation, which peaked around 9% in 2022 and has dropped to 6.5% on an annual basis as of December, 2022.
The Fed has stated that they will continue to raise interest rates until the inflation rate comes down to its target rate of 2%.
The end result of the Fed/Prime Rate increase is that borrowing costs increase – e.g., auto loans, home loans, credit card interest and other forms of bank financing – for both variable rate-loans and fixed-rate loans.
For more information, contact your Tronconi Segarra & Associates advisor at 716.633.1373 (Williamsville) or 716.438.2190.
