by Andy Giegerich
Portland banking leaders have steadfastly agreed that the prospect of a higher federal funds rate, the figure set by the Federal Reserve by which other interest rates are set, won't affect commercial lending.
After the Fed pulled the trigger on a hike, it's now time to find out whether that'll remain true.
Linda Williams noted even with the hike, interest rates "are still low and attractive from a borrowing perspective.”
The Federal Reserve on Wednesday said it would raise the figure, and by extension short-term interest rates, by 0.25 percentage points. The rate will now range between 0.25 percent and 0.50 percent.
The Federal Reserve announced the decision Wednesday morning. The body had been expected to boost the rate in October.
"Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft," Fed officials said in a statement announcing the hike.
"A range of recent labor market indicators, including ongoing job gains and declining unemployment, shows further improvement and confirms that underutilization of labor resources has diminished appreciably since early this year. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; some survey-based measures of longer-term inflation expectations have edged down."
The Federal Reserve hadn’t raised the benchmark interest rate for seven years, holding it near zero since 2008. Today's decision earned unanimous approval from the Fed, including an endorsement from Chair Janet Yellen.
Locally, at least one financial services firm reacted with a shrug.
"This was certainly the most talked about and anticipated Fed rate hike in history," wrote Ferguson Wellman Capital Management advisers. "As such, anticipated events become nonevents to the markets."
Specifically, the bond market was a bit lower while stocks were up 1.5 percent.
"The economy is robust enough that the Federal Reserve wants to 'tap the brakes' to keep the economy from overheating," the advisers wrote. "Ultimately, this rate hike should be interpreted as good news for the markets and economy."
We asked a few local bankers about the rate increase possibility in September.
“The anticipated interest rate increase hasn’t had an immediate effect on the Oregon middle market," said Ralph Hamm, Wells Fargo's commercial banking manager for Oregon.
"The common sentiment is that an increase is long overdue. A small interest rate uptick would send a positive message that our economy is improving, which is also supported by local signs of growth.”
Linda Williams, president of Washington Trust Bank's Oregon region, agreed.
"Commercial loan demand remains solid and financial institutions are actively competing for business," she said. "Any impact from interest rate increases will probably not occur until several interest rate increases have occurred. By historical standards, interest rates are still low and attractive from a borrowing perspective.”
However, Rick Roby, president and CEO of Premier Community Bank, fears that the boost could "raise the cost for businesses and could possibly cause a contraction of borrowing which over time will slow the economy. This type of environment creates more intense competition for acceptable credits."
Late last month, Dave Lofland, KeyBank's market president for Oregon and Southwest Washington, accurately predicted that the Fed wouldn't make any sharp hikes.
"For that reason, we don’t think any rate hike will be a serious impediment for the ability to borrow," he said.
"For many companies, their challenge isn’t the interest rate but what to do with their cash. The industrial side of the economy continues to struggle. It’s not pointing necessarily to a recession, but it’s made businesses more cautious. Many businesses have just struggled to deploy cash so they’re sitting with cash on the sidelines or capacity on their loans without industrial projects to go after."