The end of ZIRP has already occurred

This post was originally written on 12/15/15

The Federal Reserve concludes a two-day meeting tomorrow and is widely expected to raise their discount rate target by .25%, thereby officially ending seven years of zero interest rate policy (ZIRP).

Yet, ZIRP is already effectively over. As mentioned on this blog before, the Fed really only controls a specific overnight rate called the discount rate. Yet, short-term treasuries rates have already moved up substantially in anticipation of this. And credit spreads (which represent the real cost of borrowing for non-government entities) have widened significantly over the past months. In other words, the yield curve and credit spreads have already tightened substantially, which means ZIRP is already a thing of the past.

Investors would be well served to recognize where markets are, prior to tomorrow’s symbolic “tightening.”