Fed Rate Hike: End of the ‘New Normal’

The Federal Reserve raised interest rates again on September 26, 2018 a quarter point due to the continuing strength of the U.S. economy. It is the third time this year the Fed raised its benchmark interest rate. Market reaction to the announcement was to price in another rate rise in December as the Fed signaled an end to accommodative monetary policy.

As CNBC reported:

The latest step in the normalization process, along with the rate move, came with Wednesday’s statement, in which the committee dropped language saying that ‘the stance of monetary policy remains accommodative.’

Markets had been watching to see whether that phrase would be excised after members had indicated at the August meeting that it would be time soon to make that move.

Bankrate’s discussion on “getting back to normal” explains:

The Fed has been busy boosting rates and trimming its balance sheet to try and get back to a level it considers normal. Its statement published today was nearly identical to the one published in August. But the phrase “accommodative” was removed, indicating that the central bank believes rates are nearing the point where they’re neutral and not used to prop up the economy or slow the pace of growth.

 

There’s a lot of debate, however, about what exactly the neutral rate of interest is…

 

As the Fed continues to raise rates this year and into 2019, the end game is fast approaching. The time is now for corporates to assess the future cost of debt. Read GTreasury’s white paper now, which examines various scenarios and simulations to assess the impact of the Fed’s interest rate end game.

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