Higher interest rates on the way

If you have been keeping up with business news, you have seen this process in action. The federal funds rate, which is targeted by the Federal Reserve Bank’s Open Market Committee and had been at or near zero for more than two years, was recently raised to 0.25 percent.

While this may seem small and insignificant, it was accompanied by the Federal Reserve’s stated intention of raising this rate as many as eight times this year to a rate of 2.50 percent or higher. This type of rapid rise has not occurred since the early 1980s, and will spread through the rest of the market and create some higher rates in all sectors, which will have far reaching effects.

This rise in rates has several causes. The COVID pandemic pushed the injection of huge stimulus dollars into the economy, which caused the Federal Reserve to print more and more money to fund these policies. Additionally, the Federal Reserve opted to keep interests rates too low for much too long. As a result, our economy became overheated and spurred the most feared of all market conditions: uncontrolled inflation.

During this first quarter of the 2022, the inflation rate has soared to an 8 – 10 percent annualized rate. All of us have felt this when we go to the grocery, seek to buy a car or buy a tank of gas.

The primary mission of the Federal Reserve is to avoid inflation. In this regard, it has failed. Trying to reverse course rapidly, their only defensive tool is to raise interest rates in an attempt to cool the economy. That is where we are today.

What does this mean for county government? 

First, everything a county buys will cost more as time passes. Additionally, one of the most significant impacts will be on the cost of borrowing money for a county. The interest rates you pay to borrow money are increasing and will continue to rise. They have already risen approximately 1.0 percent and they appear to be going higher. 

If you have projects that are a priority, borrow at the earliest possible time while interest rates are still at historically attractive levels. Do not borrow money you do not need, but if you have projects, be aware of current rates are and where they are going.

Reach out to our financial services team with any questions:

• Grant Satterly, Director of Financing Services, grant.satterly@kaco.org
• Lonnie Campbell, Assistant Director of Financing Services, lonnie.campbell@kaco.org
• Kelly Collins Mittler, Financing Officer, kelly.mittler@kaco.org