Prime Rate Key Terms

Learn more about the U.S. prime rate

By Terri Deno

The U.S. prime rate is a short-term interest rate used in the country's banking system. The prime rate is set and monitored by the U.S. Federal Reserve, a government entity similar to a central bank. It is a base rate for many loans and is used as the basis for rates of interest for consumer loans. The prime rate also has an affect on other short-term interest rates. For example, the prime rate is typically 3 percentage points above The Fed funds' target rate.

Federal Open Market Committee (FOMC)

The Federal Open Market Committee is a group within The Fed that is made up of seven governors from The Fed and five presidents from Federal Reserve banks. The group meets eight times a year to determine if any changes are needed in short-term interest rates.
Try: Path to Investing provides information on the process of an FOMC meeting.

Intermeeting rate adjustment

An intermeeting rate adjustment is a change in the short-term interest rates put forth when the FOMC convenes an emergency meeting.
Try: The Federal Reserve Board provides a schedule of meetings and notification of any emergency meetings that come up. Most FOMC meetings are closed to the public.

Fed funds rate

The Fed funds rate is an interest rate directly related to the prime rate. The Fed funds rate is the interest rate that U.S. banks borrow from each other overnight. This is done through one of the 12 regional Federal Reserve banks. This rate not only affects the prime rate, but also global interest rates.
Try: The Federal Reserve Bank of New York provides an expanded definition of the Fed funds rate.

U.S. Federal Reserve

The U.S. Federal Reserve is a system that acts as the central bank of the United States. The Fed, as it is well known, controls some of the interest rate values that affect interest rates on a local level.
Try: Read more about the U.S. Federal Reserve on its website.

Short-term rates

Short-term rates are interest rates that only provide a specific rate for a year or less. Many short-term interest rates, such as the prime rate and Fed funds target rate, are controlled by the U.S. Federal Reserve.
Try: Bankrate provides a list and description of the top short-term interest rates in the U.S. and around the world.

Prime rate forecast

A prime rate forecast is when a person or company takes a look at historical prime rate data and uses it to predict an upcoming trend. This can be useful when making borrowing and lending decisions.
Try: Investopedia provides information about predicting prime interest rates using a number of methods.