Federal Reserve Rate Hike Triggers Prime Lending Rate Boost

Strategic Insights -

The nation's largest lenders have begun raising their prime lending rate to 7.75 percent, following the Federal Reserve Board's decision to increase key interest rates. Chemical Bank and Chase Manhattan Bank, two of the largest lenders, were among the first to make this change, which will make borrowing more expensive for consumers. The prime rate is used as a basis for setting home equity and other consumer lending rates. This rate increase comes as the Federal Reserve aims to control economic growth and future inflation pressures.

Key Takeaways:

  • The prime lending rate was increased to 7.75 percent by Chemical Bank and Chase Manhattan Bank, following the Federal Reserve's decision to boost key interest rates.
  • The Federal Reserve raised the Federal Funds Rate to 4.75 percent and the discount rate to 4 percent, in an attempt to control economic growth and future inflation pressures.
  • The prime rate had been on a downward trend since February 1989, when it reached 11.5 percent, and had its recent low of 5.75 percent in September 1993.
  • Analysts predict that the latest increase in the prime lending rate will slow economic growth at some point, assuming rates continue to rise.
  • Banks charged 5.25 percent to their best customers in April 1972, the lowest rate prior to the 5.75 percent rate in September 1993.

Statistics:

  • The Federal Funds Rate was raised by 0.5 percentage points to 4.75 percent.
  • The discount rate was also raised by 0.5 percentage points to 4 percent.
  • The prime lending rate had been on a downward trend since February 1989, when it reached 11.5 percent.
  • The prime rate had a recent low of 5.75 percent in September 1993, which was the lowest level since banks last charged 5.25 percent in April 1972.

Sources:

  • The New York Times, August 16 (no specific page number mentioned)