The Federal Reserve raised interest rates on Wednesday and on Thursday rates were higher.
Bloomberg’s Liz Capo McCormick reported early Thursday that Libor, or the London Interbank Offer Rate which indicates the rate banks think they can lend to each other at, spiked to around 0.36% overnight, up from around 0.13% on Wednesday and an indication that financial markets are responding to the Fed’s rate move.
On Wednesday the Fed announced it would target an effective interest rate between 0.25%-0.50%, up from a range of 0%-0.25% previously.
The mechanics of how the Fed will get to its effective target involve “reverse repo” operations that will see the Fed loan out Treasuries in exchange for cash in overnight transactions at a floor of 0.25% in an effort to push private lending into the middle of its range.
If the Fed’s rate hike goes according to plan, the effective rate would land at around 0.38%, and so Libor’s early indications put rates right near that level.
Later on Thursday we’ll see the NY Fed’s open market desk carry out its first round of reverse repo deals with rates in the new range giving markets another early look at how the Fed’s new policy world is going.
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