Tags: interest rates | janet yellen | economy | federal reserve

Yellen Is Understating the Reality: Expect Very Low Rates for Years

By    |   Wednesday, 25 February 2015 07:19 AM


Stock markets rallied after Federal Reserve Chairman Janet Yellen was careful to say nothing in her semiannual testimony to Congress.

As one example of Yellen’s ability to speak noncommittally, she said, “If economic conditions continue to improve, as the committee anticipates, the committee will at some point begin considering an increase in the target range for the federal-funds rate on a meeting by meeting basis.”

If I wrote that speech, I could simplify it to, “if something happens in the future, then at a later time in the future, the Fed will think about what to do every time they get together."

Traders seemed to be pleased that rate hikes or any other action by the Fed is not imminent.

There is even more news traders should like. According to research from Guggenheim Partners, when the hikes do start they are unlikely to amount to much.

Guggenheim found that there is a relationship between interest rates and the amount of outstanding debt. In a report called “The Glass Ceiling on Rates” they showed that as the debt-to-GDP ratio rises, the economy struggles to grow under higher interest rates. The result is a ceiling on how high the Fed should be able to raise rates before causing a contraction.

With the current debt-to-GDP ratio at a record 233 percent, they believe the Fed Funds rate cannot rise much above 3 percent without causing the economy to slow. Because inflation is low, they expect the rate on the 10-year Treasury to peak near 3.25 percent in 2018.

Low rates should support higher prices in stocks and the housing market for the next few years. Based on this research, investors should remain bullish and savers should consider moving cash into stocks.

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
MichaelCarr
Low rates should support higher prices in stocks and the housing market for the next few years. Based on this research, investors should remain bullish and savers should consider moving cash into stocks.
interest rates, janet yellen, economy, federal reserve
288
2015-19-25
Wednesday, 25 February 2015 07:19 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved