Continuing Low Interest Rates

Dear Garden State Trust Company:

I am so tired of these low interest rates. Can we expect another uptick sometime soon? Earlier this year there was talk of one more bump before the end of the year as I recall.

—CAUTIOUS SAVER

 

Dear Cautious:

I am afraid that you may have to get used to disappointment. Your memory is correct; many observers expected another interest rate increase in the second half of this year. New developments have made that unlikely, but not impossible.

The economy has been doing better, and inflation has lagged. In fact, inflation is down all around the world, raising the real possibility that the linkage between growing economies and rising prices has been broken. In July the U.S. consumer price inflation was just 1.7%, below the Fed’s target, even as the economy grew at an annualized 3% in the second quarter of the year.

A more immediate concern is recovery from hurricane damage. It will take some months to assess fully the situation and get rebuilding under way. An interest rate hike during that time would be most unwelcome, and seems unlikely.

Finally, there is the practical problem of staffing the seven-member Federal Reserve Board. There are three vacancies at the moment, Vice Chairman Stanley Fischer announced that he is stepping down early, in mid-October, and Fed Chairwoman Yellen’s term of office expires in early February. “Don’t rock the boat” may be the easier decision for the Fed to make while awaiting the appointment of new members.

Do you have a question concerning wealth management or trusts? Send your inquiry to contact@gstrustco.com.

© 2017 M.A. Co. All rights reserved.

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