Why is the prime lending rate moving up?

Running Point and its chief investment officer, Michael Ashley Schulman, CFA, were quoted by Reuters in an article—by Mehnaz Yasmin, “Wall Street banks raise prime lending rate after Fed’s sharp hike”—regarding Federal Reserve monetary policy and Wall Street banks JPMorgan Chase, Citigroup, and Wells Fargo raising their prime lending rates by 3/4% to 5.5%.

The article was also picked up by U.S. News, Yahoo finance, StreetInsider, BT India, Sun Daily (Malaysia), Kontan and Oke (Indonesia), TradingView and China Times, and Baomoi (Vietnam), to name a few.

How the prime rate is set:

Since 1955, the U.S. prime rate has never been lower than 3.25%. It is usually set 3% above the federal funds rate established by the Federal Reserve Bank. So far this year, the prime rate has followed the federal funds rate higher step-by-step. Today was a “prime” example with the Fed increasing its federal funds rate by 0.75% and large banks following suit, raising their prime lending rate by the same amount.

Quoted article excerpts are below:

“Today’s move is further admission from the Federal Reserve that it was too generous with its monetary policy in 2021 and that it is trying to reverse things quickly,” said Michael Ashley Schulman, chief investment officer at multi-family office Running Point Capital Advisors.

“If the U.S. enters a recession now, it would be a most unusual one with plentiful credit, low unemployment and high inflation — remarkable dynamics not normally associated with an economic slowdown,” Schulman added.

Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-22-47