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2025-09-17 00:26:57
Bank of America: The Federal Funds Rate Will Rise, Lagging Other Money Market Rates. Bank of America strategists Mark Cabana and Katie Craig said in a report that due to "persistently higher" money market conditions and declining prices for Federal Home Loan Bank discount bills, the effective federal funds rate will eventually rise within the Fed's target range. They wrote that the federal funds rate lags other money market rates because "FHLBs have long-standing, flexible lending relationships with foreign banks," with FHLBs often providing more loans when needed. "FHLBs are likely to raise the federal funds rate only when they are confident that the cost of their discount bills has permanently shifted." The strategists recommend focusing on the 75% overnight bank funding rate and the federal funds rate, both of which have recently risen slightly, as well as the spread between repo rates and short-term bills and discount bills, and the spread between very short-term bills and discount bills and FHLB overnight discount bills. The preferred indicator is the overnight discount rate at the Chicago Federal Reserve.
