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100 basis point is 1% (why they don't just call it 1% I don't know, that'd be more readable for 9900 BP of readers...) Now, 100 BP is what, 10x larger than the
by _yosefk 11y ago
100 basis point is 1% (why they don't just call it 1% I don't know, that'd be more readable for 9900 BP of readers...)
Now, 100 BP is what, 10x larger than the long-awaited "first rate hike in a decade"? Why do they even discuss such a "drastic" rate change? It'd take years for the interest rate to climb that much at the speed they say they intend to raise it and then it would no longer be a "shock increase" of the sort they discuss.
- var_eps 11y agoWhy is the rate change important? For two main reasons: 1) it signals the intention of the FED to actively use its tools to manage the growth of the economy as opposed to uncritically encouraging it; 2) even a token charge decreases the demand for what was once free and breaks a crucial psychological barrier for further increases in the future (see point 1; also, the freemium model in apps for an analogy). So any change upwards really matter after nearly a decade of decreases and the zero-bound rates. Basis points communicate the absolute change rather than the relative change to remove ambiguity. For example, consider a 1% interest rate: if it goes up by 100 BPS, the new rate is 2%; if by 1%, the new rate is 1.01%.
- HiLo 11y agoThey're far more worried about the differential between the Federal Funds Rate and the Natural / Wicksellian Rate, which is what they attempt to follow with the Federal Funds Rate, rather than the outright magnitude of the move.