- The Fed’s key interest rate keeps climbing higher, and that could become a problem
- The Federal Reserve’s benchmark interest rate has risen to 2.44%, the highest it’s been since the central bank began raising rates in December 2015.
- In addition, the funds rate has passed the interest on excess reserves, which had acted as a bulwark against the benchmark.
- Fed officials are likely to take up the issue at their meeting next week, though no action is expected in the near future.
The Federal Reserve’s benchmark interest rate has inched up to its highest level in 11 years even though the central bank has sent a clear message that it is done tightening policy indefinitely.
In recent days, the effective fed funds rate, which targets the overnight level that banks charge each other for loans, has moved up to 2.44%. That’s the highest since March 2008 and is just 6 basis points from the top of the target range and the closest to the top since December, when the Fed last raised rates.
For now, the move is looked on as not being especially problematic given that there is still room between the current level and the top of the 2.25% to 2.5% range in which the rate is supposed to trade. But moves toward the upper end of the band have prompted action before, and the trend likely will be a topic of discussion at next week’s Federal Open Market Committee meeting.