Basis Point
One hundredth of a percentage point.
What is Basis Point?
100 basis points equals 1%. Used to avoid ambiguity when discussing rates and fees, where 'a 1% increase' could mean either one percentage point or one percent of the existing figure.
Basis Point: a worked example
A 25 bp cut lowers a 5.00% rate to 4.75%.
More terms in Macro & Markets
Inflation
A general rise in prices that erodes purchasing power.
Real vs. Nominal Return
Return after inflation versus the headline number.
Federal Funds Rate
The overnight interbank lending rate targeted by the Fed.
Monetary vs. Fiscal Policy
Central bank rate and money supply tools versus government tax and spending.
Yield Curve
A plot of Treasury yields across maturities.
Yield Curve Inversion
Short-term yields exceeding long-term yields - a recession signal.
Recession
A significant, broad, sustained decline in economic activity.
Quantitative Easing
Central bank purchases of long-dated assets to push down long rates.