Based on the “Fed Funds” futures market, it is about a 100% chance that the Fed will increase interest rates at its meeting next week (the week of March 13-17). According to the same futures market, the odds of a second rate hike in June are better than 50%.*
Before everybody panics, let’s take a deep breath and see what the actual impact of this is. The only interest rate the Federal Reserve controls is short-term Fed Funds rate, which is the rate Banks and Credit Unions lend to each other on an overnight basis. Historically, interest rate increases have been in 25 basis point increments. Prior to the market meltdown in 2008, the federal funds rate was in the 4.00% range. It is going to take quite a few 25 basis point increases to get back up to a more normal rate of 4.00%. Finally, the markets have anticipated interest rate hikes for years and increases have already been priced into the markets.*
In short, interest rate hikes are really much ado about nothing.
*The Stansberry Digest. March 8, 2017.
These are the opinions of David Eifrig and not necessarily those of Cambridge, are for informational purposes only, and should not be construed as investment advice.
