Chart 3: The Cost of Capital is Significantly Lower in this Recession than It was in the 1990-91 Recession

Data Source: Federal Reserve Board (Haver Analytics)

Vertical Axis: Bank Prime Loan Rate (Percentage Points)

Horizontal Axis: This is a time series showing monthly data from January 1989 to January 2002.

The line represents a trend in the bank prime rate between January 1989 and January 2002. The prime rate remained at 10 percent even as the economy entered the recession in the third quarter of 1990, and did not fall till early 1991. After declining steadily between 1991 and 1992, the prime rate fell to 6 percent and stayed at that rate until February 1994. Between 1995 and early 2001, the prime rate remained relatively stable, hovering between 7.75 percent and 9.5 percent. The prime rate has fallen sharply since early 2001, reaching 4.75 percent by January 2002.

The bar represents two recessions - one from the third quarter of 1990 to the first quarter of 1991 and the other from the second quarter of 2001 to present.