What is a Prevailing Rate of Interest? Will Interest Rates Go Up in 2024?

Interest rates play a crucial role in a country’s economy as they influence the cost of borrowing money, affecting consumer spending and business investments. High interest rates can reduce consumer spending and business investments due to higher loan costs, potentially slowing economic growth. Conversely, low interest rates stimulate the economy by making borrowing cheaper and encouraging spending and investment. Additionally, interest rates are vital for central banks in controlling inflation and stabilizing the economy, underscoring their significance in economic policy and financial stability.

What is a prevailing Interest rate?

The prevailing Interest rate represents the average current rate in the economy that we calculate as an annual percentage of the loan calculated as lent, deposited, or borrowed. Interest determines your overall price after your loan is completely paid off. The prevailing interest rate is the same as the current market interest rate.

The term “prevailing interest rate” generally refers to the market’s current, most common, or widespread interest rate at a given time. This rate can vary depending on the context and the financial instrument or loan type being considered. Here are a few contexts in which “prevailing interest rate” might be used:

  1. Central Bank Rates: In the context of central banking, such as the Federal Reserve in the United States, the prevailing interest rate often refers to the benchmark interest rate set by the central bank. This rate influences the cost of borrowing and lending throughout the economy. For example, as of the latest information available to me in April 2023, the Federal Reserve’s target for the federal funds rate could be considered the prevailing interest rate in the U.S. financial system.
  2. Mortgage Rates: For mortgages, the prevailing interest rate would be the average or most common rate offered by lenders for a particular type of mortgage (e.g., 30-year fixed-rate mortgage) at a given time.
  3. Savings and Deposit Rates: For savings accounts or certificates of deposit (C.D.s), the prevailing rate would be the average interest rate offered by banks and financial institutions.
  4. Bond Yields: In the bond market, the prevailing interest rate might refer to the yield on government bonds, such as U.S. Treasury bonds, which are often considered a benchmark for other interest rates.
  5. Consumer Loans: For consumer loans like auto loans, personal loans, or credit cards, the prevailing rate would be the average rate charged by lenders for these types of loans.

Who determines an Interest rate?

The Federal Open Market Committee, FOMC, determines the prevailing Interest rate. FOMC comprises seven members on the board of governors and five presidents of Federal Reserve banks.

So, the rise in prevailing Interest rates affects credit card services, debits, loans, or even the interest on savings. All will have an increase in the prevailing Interest rates, too. It can increase the average amount if you save more and have decent savings.

As of the historical terms, the increase in prevailing Interest rates was stopped in 2019 for a specific duration, from 2019 to 2021. This year (2021), the FED did not increase the prevailing interest rates either, and they planned to do so until 2023. In the delegate meeting of FOMC, they intended it to be from 0% to 0.25% until the next meeting. Therefore, they will maintain their target of 0% prevailing Interest rates.

So after this meeting and confirmation, the impact on the credit cards, debits, savings, loans, certificate deposits, etc., will be as the 2019s have had. The prevailing interest rates on the products affect people’s finances. Since almost everyone plans to buy or pay for these services, they must decide before paying for them. So, an increase in the prevailing Interest rates will also affect financial stability.

The question is how and when the prevailing Interest rates rise and which factors this point depends on. So the answer is quite simple; meanwhile, the prevailing Interest rate has only two determinants.


Will Prevailing Interest Rates Go Down in 2024?

The prevailing interest rate will go down in the US in 2024., based on the Federal Open Market Committee (FOMC) report in winter 2023. The interest rate is 5.25% to 5.5%, but inflation has decreased.

interest rate and inflation chart

The Federal Open Market Committee (FOMC) statement from December 2023 outlines several key points regarding the state of the U.S. economy and the Committee’s monetary policy decisions:

  1. Economic Growth: The FOMC noted a slowdown in economic activity compared to the intense pace observed in the year’s third quarter. This indicates a deceleration in the rate of economic expansion.
  2. Labor Market: Job gains have moderated from earlier in the year but continue to be robust, contributing to a low unemployment rate. This suggests a still-strong labor market, although the pace of new job creation has slowed down.
  3. Inflation: Inflation has eased compared to the previous year but remains high. This indicates that while the rate of price increases is decelerating, it is still above desired levels.
  4. Banking System Health: The U.S. banking system is sound and resilient, essential for overall financial stability.
  5. Financial Conditions: The Committee acknowledges that tighter financial conditions, including more restrictive credit availability, could negatively impact economic activity, hiring, and inflation. However, the extent of these impacts is uncertain.
  6. Monetary Policy Goals: The FOMC reiterates achieving maximum employment and an inflation rate of 2 percent over the long run.
  7. Interest Rate Decision: The FOMC maintained the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. This decision reflects the Committee’s assessment of current economic conditions and goals.
  8. Policy Assessment and Future Adjustments: The Committee will continue to evaluate additional information and its implications for monetary policy. In considering further policy firming (e.g., raising interest rates), the FOMC will consider the cumulative effect of past monetary tightening, the time lag of monetary policy effects, and ongoing economic and financial developments.
  9. Asset Holdings Reduction: The FOMC plans to continue reducing its holdings of Treasury securities, agency debt, and agency mortgage-backed securities, in line with previously announced plans.
  10. Commitment to Inflation Target: The Committee emphasizes its commitment to returning inflation to its 2 percent objective.
  11. Monitoring and Adjusting Policy: The FOMC will keep monitoring incoming information and its implications for the economic outlook. They remain open to adjusting monetary policy to address risks that could hinder achieving their goals. This includes considering a broad range of information, including labor market conditions, inflation pressures and expectations, and financial and international developments.



The prevailing interest rate is a pivotal indicator in the financial landscape, reflecting the cost of borrowing and influencing economic activities across various sectors. It serves as a barometer for the economy’s health, with lower rates often stimulating growth through increased spending and investment and higher rates helping curb inflation and cool down an overheated economy.

Central banks meticulously adjust the prevailing interest rate to balance economic growth with inflation control, making it a vital tool in monetary policy. Therefore, understanding and monitoring the prevailing interest rate is essential for policymakers and market participants, as it has far-reaching implications on investment decisions, consumer behavior, and overall economic stability.



Igor has been a trader since 2007. Currently, Igor works for several prop trading companies. He is an expert in financial niche, long-term trading, and weekly technical levels. The primary field of Igor's research is the application of machine learning in algorithmic trading. Education: Computer Engineering and Ph.D. in machine learning. Igor regularly publishes trading-related videos on the Fxigor Youtube channel. To contact Igor write on: igor@forex.in.rs

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