Interest Rates Rising, ED Impacts?

The Federal Reserve has raised interest rates for the first time in over four years. A steady stream of further rises in the cost of borrowing is now likely—unless America’s high-spending, heavily-indebted households suddenly retreat

In truth, the end of cheap money began almost three months ago, when Wednesday’s decision was first anticipated. The Fed had made clear that it would raise rates from emergency lows as soon as the recovery of American economic output translated into convincing gains in employment. The buoyant job figures for March, released on April 2nd, were the evidence that the markets knew the Fed was awaiting. Yields on Treasuries rose almost immediately, as traders priced in future rate-rises. Corporate-bond yields and mortgage rates, not to mention spreads on emerging-market debt, soon followed suit. As Ben Bernanke pointed out in a recent speech, “For practical purposes, therefore, monetary conditions tightened significantly the day of the March employment report.”

Much tightening remains to be done—real interest rates are still negative—but the Fed likes to move step-by-step. The last bout of rate-raising, which began in June 1999, took 11 months, and six steps. Mr Bernanke has likened the Fed’s “gradualist” approach to that of a golfer not quite sure of his putter. Each stroke is a bit of an experiment, revealing something about the club, as well as getting the ball closer to the hole. Better, then, to make a series of tentative, “lagged” putts, rather than risk sending the ball past the cup with one over-confident stroke. Certainly, the markets think Wednesday’s putt is the first of many. The Fed has four meetings left this year, and, according to the prices of futures contracts, it will probably raise rates at every one of them, bringing the Fed-funds rate up to 2.25% by the end of the year. By the end of 2005, rates could hit 4%.

How might this impact the resurgence of your area's economy? Might this rise impact business loans and therefore increase the demand for your low-interst rate ED funds? hum, now that's a thought.

More here.