Even if it were wrapped in shiny paper with a big red bow on it, virtually everyone would have guessed at this year’s Christmas present from the Federal Reserve Board.
For most of us, the rate hike will be the equivalent of coal in our stockings, but for the economists, analysts, stock pickers, pundits, talking heads and other assorted Fed groupies, the rate hike was essential, because it validates their existence. After inaccurately predicting a rate hike throughout 2015, they finally got it right!
The hike of 25 to 50 basis points in the federal funds rate is an insignificant increase (the Fed’s Board of Governors will raise the interest rate paid on reserves to 0.5% and the Federal Open Market Committee will offer a rate of 0.25% on reverse repurchase agreements), except that it represents the end of an era. ZIRP, or zero-interest-rate policy, has now been replaced with ZIRP+ or maybe Near ZIRP, Almost ZIRP or A-Tad-Above ZIRP. It’s still as close to ZIRP as you can get without being ZIRP.
Regardless, after 84 months of ZIRP, it’s worth noting that interest rates have changed direction and are now heading up. ZIRP was already old when this blog was started in January 2010. Now what are we going to write about? (more…)