Has The Fed Actually Raised Rates This Year

The answer is debatable but it depends, exactly, to which rates you are referring. The Fed has ‘raised,’ more like ‘nudged,’ the Fed Funds target rate about 50 basis points (one-half of one percent) this year. That is, the Fed’s ‘target rate’ for the Fed Funds rate was raised slightly at the end of two of the four FOMC meetings this year from 50 to 75 basis points up to 1 – 1.25%. Wow.
But this is just one out of many interest rate benchmarks in the financial system. The 10-yr Treasury yield – which is a key funding benchmark for a wide range of credit instruments including mortgages, municipal and corporate bonds, has declined 30 basis points this year. Thus, for certain borrowers, the Fed has effectively lowered the cost of borrowing (I’m ignoring the ‘credit spread’ effect, which is issuer-specific).

This post was published at Investment Research Dynamics on June 15, 2017.