FOMC Raises Federal Funds Rate 25 Basis Points to 2.25%

CNBC | December 14, 2004

[RWR8189]

In the fifth tightening of US monetary policy in as many meetings, Alan Greenspan and the Federal Open Market Committee (FOMC) raised the Federal Funds Rate target 25 basis points to 2.25%, as expected.

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[Woodman]

Soooo, are you trying to tel me that the Fed raised rates today 25%?

In the interest rate markets a whole number is accepted as being 1 percentage point. A basis point is 1/100th of 1 point or 1/100 of 1 percent.

A T-Bill is an instrument that matures in less than 1 year. They are priced at a discount to par (100%). Par value of a T-Bill is $1,000 dollars but are generally traded in lots of $10,000 if you take a one basis point swing on $10,000 it equals $1.00 or $100.00 on 1mio USD.

However to you and I (unless you trade money markets or fixed income) 25 basis points means .25% or 1/4 of a point.

[Woodman]

One entry found for basis point.

Main Entry: basis point
Function: noun
: one hundredth of one percent in the yield of an
investment

or

Main Entry: 1point
Pronunciation: 'point
Function: noun
Etymology: Middle English, partly from Old French,
puncture, small spot, point in time or space, from Latin
punctum, from neuter of punctus, pp. of pungere to prick;
partly from Old French pointe sharp end, from (assumed)
Vulgar Latin puncta, from Latin, feminine of punctus,
past participle ...
15 : a unit of measurement: as a (1) : a unit of counting in the scoring of a game or contest (2) : a unit used in evaluating the strength of a bridge hand b : a unit of academic credit c (1) : a unit used in quoting prices (as of stocks, bonds, and commodities) (2) plural : a percentage of the face value of a loan often added as a placement fee or service charge