Fed Funds vs Prime Rate - Historical Chart
Gray shaded areas indicate U.S. recessions.
Source: Federal Reserve FRED, Series FEDFUNDS. Shaded areas = NBER recession dates. Updated 2026-03-09.
What 3.64% Fed Funds vs Prime Rate Tells Us
Prime rate equals the federal funds rate plus exactly 3 percentage points. This is the most predictable relationship in all of finance. Fed funds at 3.64%, prime at 6.75%. The spread is always 3.00%. Always.
This relationship has held without exception since 1994. Before that, the spread varied slightly (2.5-3.5%), but for the past three decades, prime = fed funds + 3 has been an iron law. No bank deviates. When the Fed announces a rate change, every major bank adjusts prime by exactly the same amount on the same day.
Why does this matter? Because it makes your future loan payments perfectly forecastable. If you know where the Fed is going, you know where prime is going, and you know where your monthly payment is going. The Fed publishes a dot plot of rate expectations. Futures markets price in probabilities. You can convert both into projected loan payments with simple arithmetic.
Using the Spread to Forecast
If the Fed cuts by 25bp, prime drops 25bp the same day. On $300,000 of prime-based debt, each 25bp cut saves $750/year ($62.50/month). If markets are pricing 75bp of cuts over the next 12 months, your projected annual savings are $2,250 -- meaningful but not transformative for a distressed business.
What This Means for Business Owners
The fixed 3% spread means that all the action is in predicting the Fed. Here is what the Fed watches: inflation (CPI, PCE), employment (payrolls, unemployment rate), and financial stability (bank health, market stress). When inflation is falling and employment is softening, cuts become more likely. When inflation is sticky and employment is strong, the Fed holds.
Right now, inflation is moderating but above the 2% target. Employment is slowing but not contracting. The Fed is in wait-and-see mode. That means prime stays at 6.75% until the data gives the Fed enough confidence to cut.
What Breaks the 3% Spread?
Nothing has broken it in 30 years. Not the 2008 crisis, not COVID, not the 2023 bank failures. The spread is maintained because all major banks adjust simultaneously to avoid competitive disadvantage. If Bank A kept prime higher after a Fed cut, borrowers would move to Bank B. The coordination is automatic and instantaneous.
This predictability is a gift to business planners. Unlike mortgage rates (which fluctuate with bond markets) or MCA pricing (which varies wildly by provider), prime-based loans have rates that are knowable in advance if you track Fed policy.
Frequently Asked Questions
The fed funds vs prime rate is 3.64% as of Feb 2026, based on Federal Reserve FRED series FEDFUNDS.
The reading moved unchanged by 0.0pp from Jan 2026. The trend is downward, with decreases in 5 of the last 6 months.
The all-time peak was 19.1% in Jun 1981.
At 3.64%, the current reading is above the 10-year average of 2.25%.
The fed funds vs prime rate influences the overall cost of capital and credit availability. Higher readings typically correspond to tighter credit conditions and more expensive borrowing for all businesses.
Federal Reserve FRED series FEDFUNDS. Updated regularly by the Federal Reserve Bank of St. Louis.