Why is the rate change important? For two main reasons:
1) it signals the intention of the FED to actively use its tools to manage the growth of the economy as opposed to uncritically encouraging it;
2) even a token charge decreases the demand for what was once free and breaks a crucial psychological barrier for further increases in the future (see point 1; also, the freemium model in apps for an analogy).
So any change upwards really matter after nearly a decade of decreases and the zero-bound rates.
Basis points communicate the absolute change rather than the relative change to remove ambiguity. For example, consider a 1% interest rate: if it goes up by 100 BPS, the new rate is 2%; if by 1%, the new rate is 1.01%.
So any change upwards really matter after nearly a decade of decreases and the zero-bound rates.
Basis points communicate the absolute change rather than the relative change to remove ambiguity. For example, consider a 1% interest rate: if it goes up by 100 BPS, the new rate is 2%; if by 1%, the new rate is 1.01%.