The U.S. prime rate is the benchmark interest rate for loans issued by banks in the United States. The prime rate is the base for lenders to offer loans, with most loans being expressed as prime plus a percentage amount. The U.S. prime rate is influenced by the federal funds rate, which is, in turn, determined by the Federal Open Market Committee.
The U.S. prime rate represents the best possible borrowing rate a consumer could get on a loan from a commercial bank. There are several levels of interest rates that are used as data points by forex market investors and the U.S. prime rate is one of them. A high prime rate usually means a tightening of credit and suggests the possibility of an economic slowdown or contraction. A low prime rate encourages borrowing and economic growth, but also invites inflation as the loans expand the money supply.
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