ETF Trends
ETF Trends

The Federal Reserve hiked the interest rate it charges banks for emergency loans after the market closed today. What does it mean, and which exchange traded funds (ETFs) could be affected by the move?

The Federal Reserve changed the interest rate it charges banks for emergency loans, making the first interest rate move since December 2008. The hike in the discount rate – from 0.50% to 0.75% – will not affect consumer or company loans, reports Reuters. The Fed insists this move isn’t akin to tightening monetary policy. [How to Protect Yourself from the Deficit.]

The Fed made the move after it cited improvements in the financial markets. The rate is effective tomorrow. [Bond ETFs Waiting on the World’s Central Banks.]

ETFs that could potentially be affected – positively or negatively – by the move include:

  • PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP): The dollar tends to strengthen as interest rates rise

  • iShares Barclays 1-3 Year Treasury Bond (NYSEArca: SHY): Short-term bonds tend to come in favor as interest rates rise and hit long-term bond prices

  • Financial Select Sector SPDR (NYSEArca: XLF): Banks big and small are bound to feel the impact of a rate increase

For full disclosure, some of Tom Lydon’s clients own shares of SHY.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.