During 2015’s fourth quarter, the Federal Reserve increased Fed fund rates by 25 basis points. That same action was just mirrored in this fourth quarter.
Based on the latest comments from Fed chair Janet Yellen, the next three years should bring another 75 basis point increase per year to achieve a short-term rate of 2.75% to 3.00%. If only half of those estimates actually happen, short-term rates could hover around 1.50%.
Compared to rates over the last decade, this would be a big increase. However, these levels would still be an historic average that is considered healthy in controlling inflation and economic growth.
The difference between now and the last 10 years is that rates are on the way “UP”—to what degree will depend on the rate of economic growth in the U.S. and overseas. Clearly, there is plenty that is very much “up in the air.
What should one consider as next steps under these circumstances? Are your instincts to be proactive or have a sense of urgency? In my view, you should be both. As mentioned in past blogs, the markets are already reflecting the Fed’s action well in advance. Bank deposit rates will lag, while short-term Treasuries are earning close to 1.00% or more.
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At three+one we can help by analyzing every dollar that comes into and goes out from your unit, department, organization, or institution—and place a time value and worth on those funds. The results can add tens to hundreds of thousands of dollars to your fiscal year’s bottom line.
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