Prime rate

The US prime rate is estimated at 7.5% in 2025. Interest rate cuts led to some initial downward pressure; however, the implementation of new tariffs in 2025 has introduced significant economic uncertainty. The Federal Reserve is exercising caution with rate movements to mitigate the risk of inflation stemming from higher input prices. If price increases remain elevated or new trade agreements fail to stabilize markets, the prime rate may remain at this level or even increase further. Unemployment rates have fluctuated over the year, in part because of the negative effects of tariffs, which have made employers hesitant to expand their workforces and contributed to broader uncertainty in hiring. This instability has increased the need for the Federal Reserve to implement rate cuts during the year, or has at least influenced considerations regarding the size and timing of those cuts aimed at stimulating economic activity.

Between 2020 and 2025, the prime rate experienced substantial volatility due to macroeconomic and policy-driven shocks. The rate began this period at 3.3% in 2021. In response to the economic effects of the COVID-19 pandemic, the Federal Reserve kept the federal funds rate at historic lows to support the labor market and spur business investment. As economic activity rebounded and inflation accelerated in 2022 and 2023, the Federal Reserve undertook aggressive tightening measures by raising the federal funds rate, which in turn sharply raised the prime rate. By mid-2023, the federal funds rate had reached 5.25% to 5.50% and the prime rate climbed to levels between 8.3% and 8.5%. These actions reflected the central bank's need to counter persistent inflation, despite the effect of increasing borrowing costs for businesses and consumers.

The macroeconomic environment from 2020 to 2025 has been shaped by rapid recovery from the pandemic, tight labor markets, soaring inflation and shifting monetary policy. The introduction of new tariffs in 2025 has further complicated the economic landscape by putting upward pressure on input costs and creating additional inflationary risks. The Federal Reserve's interest rate decisions have become more cautious as it navigates the complex dynamics of trade and inflation. Overall, the prime rate increased over the period as the central bank responded first to economic recovery and then to sustained price pressures. This period highlights the sensitivity of the prime rate to monetary policy, fiscal stimulus, and global macroeconomic shocks. Amid such issues, the prime rate has grown at a CAGR of 16.1% over the five years to 2025.