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The Federal Reserve hiked the Discount Rate, defined as the interst rate charged to commercial banks on loans they receive from their regional Federal Reserve Bank’s lending window, making it more costly for financial institutions requiring these emergency funds. During normal times the banks borrow from each other at a rate called the Federal Funds rate which is at approximately 0.13%. By raising the Discount Rate, we believe the Fed is moving in a symbolic fashion and indicating that the economy is moving toward more “normal” times.
We believe any substantial (2%-4%) is buyable. That said, more ”normal” times implies higher interest Rates (Discount, Fed Funds and General Market) during the future. Be careful of long-term bonds, those maturing more than ten years down the road.