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Paul Craig Roberts – What Does Today’s “Rate Hike” Mean?

The Federal Reserve raised the interbank borrowing rate today by one quarter of one percent or 25 basis points. Readers are asking, “what does that mean?”

It means that the Fed has had time to figure out that the effect of the small “rate hike” would essentially be zero. In other words, the small increase in the target rate from a range of 0 to 0.25% to 0.25 to 0.50% is insufficient to set off problems in the interest-rate derivatives market or to send stock and bond prices into decline.

Prior to today’s Fed announcement, the interbank borrowing rate was averaging 0.13% over the period since the beginning of Quantitative Easing. In other words, there has not been enough demand from banks for the available liquidity to push the rate up to the 0.25% limit. Similarly, after today’s announced “rate hike,” the rate might settle at 0.25%, the max of the previous rate and the bottom range of the new rate.

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