Where Rising Starts Will Be Seen

  January 18, 2016

Interestingly enough, the only rates that the Fed can actually directly affect are shortterm rates, such as the Federal Funds rate. The Federal Funds rate in turn influences other rates set by large commercial banks, such as the prime rate.

The Fed’s rate increase will essentially affect borrowers of shortterm loans made by finance companies to banks. Credit card rates, auto loans, and shortterm corporate loans will be the primary loan types affected.

Should Fed officials continue on with their targets, economists and analysts expect a gradual rise in short-term rates over the course of the year. The Fed did state that loans linked to longer-term interest rates are unlikely to move very much during the same period. Some fixed income analysts have upbeat assessments for the bond markets in 2016. Assuming the U.S. economy continues to grow at a modest but steady pace, it will allow companies to expand and make it easier to repay bond debt. Improving consumer confidence and a low unemployment rate will help foster a healthy bond market.

 

Sources: Bloomberg, Reuters

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