Christmas Comes Early for Bankruptcy Professionals as Federal Reserve Hikes Interest Rates

The Federal Reserve slashed rates to zero in 2008 in the midst of the financial crisis.  There it remained during the Great Recession and beyond. This may be great for the economy, but it’s very disheartening if you are a bankruptcy professional.

Many of you are familiar with our rain dance.  “How is business these days,” someone at a conference asks?  Slow. “But this low-interest rate environment can’t last forever,” we say. “And when interest rates increase, then bankruptcy business will boom again.” A small gaggle of lawyers and financial advisors gathers around, theories are exchanged, and someone concludes authoritatively that interest rates will increase in the next 12-18 months. By the time next year’s conference rolls around, everyone has forgotten who made the prediction. For 8 years, this dance has been repeating itself at TMA, ABI and AIRA conferences, in bankruptcy courts, and in trustee’s offices across the country.

But this holiday season, things are different!  Today, the Federal Reserve increased its key interest rate by 0.25%. This is just the second time in a decade that the Federal Reserve has raised rates. The first was in December 2015.

And today’s rate increase could be followed by more.  If infrastructure spending sparks an inflationary demand for goods, the Federal Reserve could respond by raising rates.  The Fed has also hinted that it could begin raising rates at a faster pace, with perhaps three or more rate hikes in 2017.

The action signifies the Fed’s confidence in the improving U.S. economy following an increase in economic growth since the middle of this year.

What, exactly, it will mean for bankruptcy practitioners remains to be seen.

But it sure beats a lump of coal in your stocking….

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Mette H. Kurth




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