A funny thing happened on the way to the Federal Reserve’s latest interest rate cut: borrowing costs have actually risen. And by a lot.Worse, the credit markets have experienced a liquidity squeeze — not enough money to go around — the likes of which hasn’t happened since the last financial crisis.
That doesn’t mean there is another crisis on the way. But it also doesn’t mean that there isn’t.The Fed cut interest rates by one quarter of a percentage point yesterday. They call that a 25 basis point cut on Wall Street, and now the range of the so-called Fed Funds rate is between 1.75 percent and 2 percent.
Fed funds is the rate that banks borrow from each other short-term, usually overnight. It’s also the rate that the Fed lends money to banks in a pinch.As I’ve said often, the Fed only has influence over short term interest rates. The Fed funds rate has little to do with money borrowed and lent over a 2-year, 10-year or 30-year period.