For the third time in 16 months, the Federal Reserve’s Open Market Committee raised the federal funds rate by a quarter point, triggering a similar move in the prime interest rate.
This is a reflection of confidence by the Fed in continuing to bolster economic growth on the heels of a 235,000 jobs report increase last month on the national level.
We now see most states reporting unemployment below 5%, and measures of inflation hovering from 1.7%-2% annual rates.
Both are signs of a solidly performing national economy.
The good news is that the U.S. jobs growth has been the catalyst for this action and will be the trigger for any future actions.
If we continue to see national job gains of 200,000-plus per month, we may well see two more Fed funds hikes by October.
So, what does all of this mean for Connecticut?
For our state and municipal governments, it means the era of cheap borrowed bonding is coming to an end.
It will motivate those looking to buy their first homes or businesses searching for capital to expand to do so sooner rather than later.
It will mean bank instruments like CDs will pay better interest rates.
And of course, it will increase the cost of borrowing, boosting the value of the dollar—good for tourists, bad for exporters.
For our state and municipal governments, it means the era of cheap borrowed bonding for spending and investments is coming to an end.
In time, it will boost their borrowing costs as well.
The Fed has expressed its faith in the recovering American economy.
Connecticut must keep its faith as well in our recovering economy.
Connecticut can do no less, by keeping up its optimism in creating jobs, allowing businesses to expand their reach, for encouraging young professionals to purchase that first home, and by supporting our leading industries to continue to invest ahead of the rest.
Pete Gioia is an economist with CBIA. Follow him on Twitter @CTEconomist.