So you think a 21 percent prime rate is high? How about 28 percent? Or 35 percent? Some economists think the prime, with a push from inflation and the Federal Reserve Board, could jump dramatically in coming years. The president of one large New York bond trading firm says the rate will reach 28 percent in two years as the Fed, in an effort to control inflation, continues to boost the interest rate it charges for loans to member banks. This will force banks to keep raising the prime.
Even more pessimistic is William E. Donoghue, who publishes a money market newsletter. He thinks the prime will soar to 35 percent, saying: "Banks seem to find it easier to raise the prime than lower it."m