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Even though large parts of the world were colored white over the past week (large parts of Europe and the U.S. were covered in snow), the proverbial economic winter is yet to come. Last week, as we expected and already explained in one of our previous articles, the Fed announced another rate hike, this time from 1.25% to 1.5%. Moreover, Fed Chair Janet Yellen said she expected the Fed to continue their rate hike trajectory in the coming years. The Fed board is forecasting three more rate hikes in 2018. Yet, Yellen seems dangerously unaware of the danger that lies ahead. She made a few highly remarkable comments on interest rates and the yield curve in her press conference. How did credit markets react to the Fed´s decision and what can we expect in 2018?

Fed Raises Rates

While the Fed raised interest rates from 1.25% to 1.5%, the interbank market (12 month) rate increased even more. Source: St Louis Fed

Short-term Rates Are the Basis for Many, Many Loans

Corporate debt was never as high as today. Source: St Louis Fed

But the Fed Is Not Concerned about the Yield Curve …

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