A solid foundation A solid foundation http://www.federatedinvestors.com/static/images/fhi/fed-hermes-logo-amp.png http://www.federatedinvestors.com/daf\images\insights\video\construction-transit-line-small.jpg July 7 2022 July 7 2022

A solid foundation

Municipalities can build on tax revenues.

Published July 7 2022
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Video Transcript
00:00
Question: How will the Fed's rising interest rates impact municipalities?
00:08
R.J. Gallo: Every borrower, corporate, municipal government, federal government, doesn't matter, they're all paying higher borrowing costs given the inflation surge and the Fed's policy response to that inflation. Ultimately, that can squeeze financial flexibility. The good news is, on the muni side, all states are doing better now than they were a year ago or two years ago. State revenues have surged. Income taxes to Sacramento, to Tallahassee, to Albany, they're all way up. Sales taxes have also surged because the economy has done very well as it comes out of the depth of the pandemic economic shock. So the rising borrowing costs that are occurring are at least happening at a time when the fundamental financial health of state and local governments and many related entities is in fact rather strong. We don't see any significant weaknesses out there that's going to be revealed by the rising interest rate path. That said, any corporate treasurer, municipal treasurer, would be unhappy with the fact that they're paying more to borrow money now than they were, say, 6 to 12 months ago.
Tags Fixed Income . Taxes .
DISCLOSURES

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Bond prices are sensitive to changes in interest rates and a rise in interest rates can cause a decline in their prices.  In addition, fixed income investors should be aware of other risks such as credit risk, inflation risk, call risk and liquidity risk.

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