Thursday, September 24, 2015

Interest Rates

When I graduated from college, interest rates were high and going higher.  I remember getting a five year CD at 14% during the 80s.   People thought I was crazy since rates were probably going up to 30% in a few years.

Well, rates soon plateaued and declining rates led to the great bond bull market.

Nowadays, interest rates are so low, it doesn't seem worth it to put money in a CD.   After all, 0.05- 0.5% doesn't return much money.   Rumor has it that Ben Bernanke (60) said that the Fed funds rate won't return to its normal benchmark of 4% during his lifetime.

With the latest Fed action of keeping interest rates at 0, I'm starting to think that Mr. Bernanke is right. It seems the Fed only wants to give the impression of raising rates and doesn't really want to raise rates.

Now, I don't expect the Fed to raise rates at the October 29-30 meeting.   That will be too close to Halloween, which is a very scary time.  (Perhaps, Ms. Yellen can dress up as a witch at the press conference to make the point.)   The December 17-18 meeting will be too close to Christmas and the Fed won't want to give markets a lump of coal.  (For this press conference, Ms. Yellen can dress up as Mrs. Claus.)

When I was younger, we didn't think inflation and interest rates would come down.   Now, I don't expect inflation and interest rates to rise to normal least not in my lifetime.

For more on  Crossing Generations, check back Thursdays for a new segment.

This is not financial advice. Please consult a professional advisor.

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