By Bob MeisterlingInterest rates of course affect us all, both as consumers and managers in business. They can make a dream home affordable or forgettable, and with respect to businesses, materially drive current expenses and the potential profitability of future capital investments.

What we have witnessed in the past nine years is unprecedented. Today, I‘ll provide a brief overview of the current interest rate environment and the key components behind it, and then recklessly speculate on the future, because if I am going to impersonate an economist, I may as well play the part.

Part 1:

When most people think of interest rates, the Federal Reserve (“the Fed”) comes quickly to mind as the purveyor. The Fed has what is referred to as a “dual mandate” to monitor inflation and attempt to maintain full employment in the economy. As one of their tools for stimulation or restriction in these areas is a fiscal policy of controlling interest rates.

The Fed unilaterally has the ability to set and change one rate, known as the Federal Funds Rate. This is a benchmark rate at which the top-creditworthy depository institutions (banks) will charge one another, on an overnight basis.

This rate is viewed as close to risk-free as there is, and other rates such as LIBOR, Treasuries, and Mortgage rates directionally follow suit. We have seen the Fed increase this rate twice in a little over a year with stated expectations of further increases.


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