by Bill McBride on 7/29/2015 11:49:00 AM
Wednesday, July 29, 2015
Just wondering ...
No one expects a rate hike from the FOMC today. And most of the focus has been on WHEN the first rate hike will happen - and also how quickly the Fed will subsequently raise rates. Note: Most analysts expect the first rate hike in either September or December - and some think the Fed will wait until 2016.
But how large will the first rate hike be? Most analysts seem to expect a 25 bps increase - but what does that mean?
In December 2008, the Fed lowered the Fed Funds rate from 1.0% to a range of 0.0% to 0.25%. From December 2008:
"The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent."So is a 25 bps increase from zero to 0.25%? Or is it from the top of the range to 0.5%?
It seems unlikely the FOMC will increase the range to 0.25% to 0.5%.
Currently the effective Fed Funds rate is at 0.14%. This bounces around every day, but it has been close to 1/8 percent on average.
So it is possible the FOMC will raise rates 25 bps to 3/8 percent (0.375%).