Fed Meeting, Rate Hikes, Effect on Interest Rate

The Federal Open Market Committee and its 12-members will be meeting today, March 21st 2018 to discuss current monetary policies. The market fully anticipates an increase in the federal funds rate by a quarter of a percent. This change to the federal fund rate will trigger a chain of events that affect other short-term interest rates, foreign exchange rates, & long-term interest rates. What does this mean for our current interest rate environment? For the most part, this increase has already been baked into the market since this increase has been well telegraphed by the Fed. The 10-Yr Treasury Bill has increased by over eighty basis points (2.01 – 2.90 today) over the last 6-months. However, the effective rate of borrowing doesn’t necessarily move in lockstep since the spreads that lenders charge above these indexes have compressed over the same period of time. The Fed is expected to raise interest rates 3-4 times in 2018 and this continual upward pressure by the Fed will increase effective borrowing costs.