Skip to main content
Subscribe
  • Sign Up Free
  • Login
  • Subscribe
  • News
    • Current News
    • Providers
    • Insurance
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • Digital Health
    • Transformation
    • ESG
    • People
    • Regional News
    • Digital Edition (Web Version)
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • Midwest
    • Northeast
    • South
    • West
  • Opinion
    • Bold Moves
    • Breaking Bias
    • Commentaries
    • Letters
    • Vital Signs Blog
    • From the Editor
  • Events & Awards
    • Awards
    • Conferences
    • Galas
    • Virtual Briefings
    • Webinars
    • Nominate/Eligibility
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Excellence in Governance
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top Innovators
    • Diversity in Healthcare
      • - Luminaries
      • - Top 25 Diversity Leaders
      • - Leaders to Watch
    • Women in Healthcare
      • - Luminaries
      • - Top 25 Women Leaders
      • - Women to Watch
    • Digital Health Transformation Summit
    • ESG: The Implementation Imperative Summit
    • Leadership Symposium
    • Social Determinants of Health Symposium
    • Women Leaders in Healthcare Conference
    • Best Places to Work Awards Gala
    • Health Care Hall of Fame Gala
    • Top 25 Diversity Leaders Gala
    • Top 25 Women Leaders Gala
    • - Hospital of the Future
    • - Value Based Care
    • - Hospital at Home
    • - Workplace of the Future
    • - Digital Health
    • - Future of Staffing
    • - Hospital of the Future (Fall)
  • Multimedia
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Video Series - The Check Up
    • Sponsored Video Series - One on One
  • Data Center
    • Data Center Home
    • Hospital Financials
    • Staffing & Compensation
    • Quality & Safety
    • Mergers & Acquisitions
    • Data Archive
    • Resource Guide: By the Numbers
    • Surveys
    • Data Points
  • Newsletters
  • MORE+
    • Contact Us
    • Advertise
    • Media Kit
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. Finance
December 16, 2015 12:00 AM

Why the Fed's rate hike could spur healthcare borrowing

Melanie Evans
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Getty Images
    Federal Reserve Chairwoman Janet Yellen acknowledged risks to the ongoing recovery from the recession but said she is confident in the fundamental forces driving U.S. economic growth.

    (This article was updated at 3:50 p.m. ET.)

    The Federal Reserve on Wednesday announced a widely anticipated increase to the benchmark interest rate, the first in nearly a decade.

    The increase—a boost of 25 basis points, or 0.25 percentage points—may have little immediate cost to borrowers. But for the first time in seven years, the rate of short term borrowing now hovers above zero. The move also cements the Federal Reserve's confidence in the nation's economic recovery, which has been halting at times and continues to be underwhelming for U.S. workers, who have not seen wages raise as a result.

    “This action marks the end of an extraordinary seven-year period during which the federal funds rate was held near zero to support the economic recovery from the worst financial crisis and recession since the Great Depression,” said Federal Reserve Chairwoman Janet Yellen in a press conference announcing the decision.

    The Federal Reserve said that falling unemployment and job growth this year, as well as household spending and business investment growth, prompted the change in monetary policy.

    “The committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen,” the Federal Reserve Open Market Committee said in a statement announcing the rate hike.

    Stocks responded favorably to the news with a surge in the Standard & Poor's 500 after the announcement. The index climbed to 2074.93 at deadline from 2055.37 prior to the news. Healthcare stocks mostly got a boost after the news as investors responded to the long-awaited increase. “It's a little bit of stability now,” said Dean Diaz, a senior vice president Moody's Investors Services. “It was expected. It happened.”

    But markets reacted little otherwise, suggesting that borrowing already reflected the higher rate. “The markets were expecting this,” said Drew Matus, an economist at UBS. “It was very well telegraphed.”

    Yellen acknowledged risks to the ongoing recovery from the recession that ended in mid-2009 and pushed unemployment to 10%. But she said she is confident in the fundamental forces driving U.S. economic growth.

    “We have been concerned about the risks form the global economy and those risks persist, but the U.S. economy has shown considerable strength,” she said.

    The short-term interest rate is expected to reach 1.38% by the end of next year and 2.38% by the end of 2017. Federal Reserve officials will monitor the economy and inflation as it considers future rate increases, Yellen said.

    The rate increase is slower than past economic cycles, but not “a particularly worrisome pace,” said Matus.

    Getting in before rates go even higher

    The expectation that Wednesday's Fed action is only the beginning could bring ambivalent borrowers to the market before the cost to borrow edges upward again. “We've all talked about it and now it's going to happen,” said Steve Kennedy, a senior managing director at investment bank Lancaster Pollard who works with not-for-profit hospitals and senior living borrowers.

    That could raise interest rates for not-for-profit health systems, which account for about 80% of U.S. hospitals, but the real pressure on borrowing costs may not come from the Federal Reserve.

    Investor demand has outpaced debt issued by hospitals, which has helped keep interest rates low as supply of bonds has been notably smaller than demand from investors. “That really drives what the average hospital is going to pay, way more so than whether the Fed is going to raise interest rates” today, said Pierre Bogacz, a managing director at HFA Partners.

    Borrowing has been sluggish even as investor demand continues, thanks to uncertainty regarding capital investment created by changes to healthcare policy, Bogacz said. But hospitals may now look closely at capital projects and consider financing to avoid paying more to borrow later.

    Not much will change immediately for corporate healthcare companies, which have already capitalized on the extended period of cheap borrowing to refinance debt and borrow for mergers and acquisitions, said Megan Neuburger, a managing director for Fitch Ratings. “(It's) probably business as usual tomorrow,” she said.

    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    GenesisCare files for Chapter 11 bankruptcy, seeks to offload U.S. operations
    GenesisCare files for Chapter 11 bankruptcy, seeks to offload U.S. operations
    bankruptcy 2
    Friday Health Plans shutting down amid financial shortfall
    Most Popular
    1
    More healthcare organizations at risk of credit default, Moody's says
    2
    Centene fills out senior executive team with new president, COO
    3
    SCAN, CareOregon plan to merge into the HealthRight Group
    4
    Blue Cross Blue Shield of Michigan unveils big push that lets physicians take on risk, reap rewards
    5
    Bright Health weighs reverse stock split as delisting looms
    Sponsored Content
    Daily Finance Newsletter: Sign up to receive daily news and data that has a direct impact on the business and financing of healthcare.
    Get Newsletters

    Sign up for enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today
    MH Magazine Cover

    MH magazine offers content that sheds light on healthcare leaders’ complex choices and touch points—from strategy, governance, leadership development and finance to operations, clinical care, and marketing.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS

    Our Mission

    Modern Healthcare empowers industry leaders to succeed by providing unbiased reporting of the news, insights, analysis and data.

    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Advertise with Us
    • Ad Choices Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Modern Healthcare
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • News
      • Current News
      • Providers
      • Insurance
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • Digital Health
      • Transformation
        • Patients
        • Operations
        • Care Delivery
        • Payment
      • ESG
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition (Web Version)
    • Opinion
      • Bold Moves
      • Breaking Bias
      • Commentaries
      • Letters
      • Vital Signs Blog
      • From the Editor
    • Events & Awards
      • Awards
        • Nominate/Eligibility
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Excellence in Governance
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top Innovators
        • Diversity in Healthcare
          • - Luminaries
          • - Top 25 Diversity Leaders
          • - Leaders to Watch
        • Women in Healthcare
          • - Luminaries
          • - Top 25 Women Leaders
          • - Women to Watch
      • Conferences
        • Digital Health Transformation Summit
        • ESG: The Implementation Imperative Summit
        • Leadership Symposium
        • Social Determinants of Health Symposium
        • Women Leaders in Healthcare Conference
      • Galas
        • Best Places to Work Awards Gala
        • Health Care Hall of Fame Gala
        • Top 25 Diversity Leaders Gala
        • Top 25 Women Leaders Gala
      • Virtual Briefings
        • - Hospital of the Future
        • - Value Based Care
        • - Hospital at Home
        • - Workplace of the Future
        • - Digital Health
        • - Future of Staffing
        • - Hospital of the Future (Fall)
      • Webinars
    • Multimedia
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Video Series - The Check Up
      • Sponsored Video Series - One on One
    • Data Center
      • Data Center Home
      • Hospital Financials
      • Staffing & Compensation
      • Quality & Safety
      • Mergers & Acquisitions
      • Data Archive
      • Resource Guide: By the Numbers
      • Surveys
      • Data Points
    • Newsletters
    • MORE+
      • Contact Us
      • Advertise
      • Media Kit
      • Jobs
      • People on the Move
      • Reprints & Licensing