Rates/Indicators the Effective Federal Funds

Rates/Indicators

The effective federal funds rate is presently at 1.59%. Three years ago the rate was 3.76%. In the past year, the fed funds rate has been on a steady declining course. In September 2007 the rate began a steady decline that continued into the spring. Since May, it had moved in a range between 1.94-2.08%. This range has only been broken in the past month, resulting in a further decrease in the fed funds rate.

The discount rate is presently 2.18%. Three years ago the rate was 4.50%. In the past year, the discount rate has been on a steady decline. At the beginning of May, the discount rate stabilized at 2.25% and held steady through until this week, when it dipped slightly. As with the fed funds rates, the discount rate rose gradually for the first two years of the three-year survey before dropping on a rapid but steady past in the past year. The discount rate tends to hold steady for weeks at a time, and in the past year there have been stretches where this trend did not hold, indicating an increase in volatility of the discount rate, particularly from last fall to this past spring.

The prime rate is presently 4.93%. Three years ago the rate was 6.5%. In the past year, the prime rate has declined steadily. Last October, it sat at 8.25%, and from there it dropped to 5.00% beginning at the start of May. It held steady at that level until dropping this past week. The broader trend for the prime rate over the past three years is the same as the discount and fed funds rate - a two-year increase followed by a steady decline in the rate over the past year, to levels significantly lower than where we were three years ago.

The leading indicator index is at 100.8 for August, 2008, the most recent available (next release is October 20th). This represents a decline over the previous month, and the lowest level of the year. Over the past three months, this index has trended down. In June this was at 102.0, then 101.3 in July. Prior to that the level it had been stable all year (either 101.9 or 102.0).

In terms of individual components, the following components were up: average weekly unemployment initial claims, stock prices, manufacturing new orders (consumer goods) and index of consumer expectations. Of these, it should be noted that the stock prices are lower than at any other point this year except for July. Average weekly unemployment initial claims rising is a negative component, so a rise will reduce the leading indicators index. Manufacturing orders represented a slight increase but is well down for the year. Therefore, only consumer expectations made a positive contribution to the index.

The indicators that declined were: average work week, supplier deliveries, manufacturing new orders (capital goods), building permits, money supply and interest rate spread. Of these, the work week represented a slight decline, but to its lowest level all year. Supplier deliveries, a measure of vendor performance, declined sharply. Manufacturing new orders (capital goods) has floated in a fairly broad range all year and is presently in the middle. Building permits are down significantly in the past month, and for the year as a whole.