![]() ![]() If this up-trend rate scenario becomes reality, just imagine what that could mean for balance sheet management. Operational Risk: if your business model has been dependent on low-low rates to survive, you better adjust to this new reality. But it also affects credit risk and operational risk.Ĭredit Risk: higher rates mean more borrowers will not be able to afford their payments at rate reset. Now, while you're pondering this scenario, remember: what I'm describing is risk management. Perhaps between 2% - 5%? Not sure exactly. The Fed might have to keep Fed Funds at a generally higher level than it's been for the last 15 years. It's not a big leap to surmise a protracted inflationary period is upon us, which would mean that. That cost will be passed into the prices of goods and services. Bringing jobs state-side is inflationary because American workers cost more. Everyone is talking about on-shoring and near-shoring. Geopolitics generally is heading toward a retreat on globalization. Anybody reading this who managed a bond book in the '70s? And again, I'm not saying it will happen. Most of us weren't alive the last time there was a long up trend in rates. What if Fed Funds remains elevated for some time? What I'm asking you, Dear Reader, is this: I'm not saying that we are going to have a 40 year trend of rising rates. This can be clearly seen in the graph attached.Īnd, if you go back in time, it appears there are long upward/downward trends in the short term rate, as follows: From 1981 to 2021 (40 years), the Fed Funds rate generally went down. What if the Fed Funds has begun an upward trend that will last for 5 years or more? What if the inflation of 2021 was the end of the 40-year bond bull run? Let's consider the long sweep of interest rate history, going back 200 years.įrom the end of WW2 to 1981 (36 years), the Fed Funds rate generally went up. Ethernet / Internet (stock) A new report estimates there are 42.8 million people in the US without broadband access, nearly twice the official estimate reached by the.
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