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December 15, 2015

Fixed Income Perspectives: Fed Raises Rates

Federal Reserve Open Market Committee (FOMC) announced an increase in the target range for the federal funds rate to 1/4% to 1/2%. The fed funds rate has held a target range of 0% to 1/4% since 2008. This is the first increase in the fed funds target rate since June 2006.

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On its own, this move seems a bit hollow. Not only was this the most highly anticipated and expected announcement from the Fed in recent memory, the target range of 0.25%- 0.50% remains highly accommodative. The Fed still maintains the economy is “expanding at a moderate pace”; a view it has held for the past few years. This is not quite the robust economy one would hope to accompany a rate increase. It is not clear that the zero rate policy maintained over the past several years actually lead to any significant increase in lending or overall economic activity.

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