FED GUARANTEES LOW INTEREST RATES FOR 2011, 2012, AND 2013
Breaking news on 8/9/11 – Today the Fed’s chairman Ben Bernanke came out with a highly unusual pledge to not raise interest rates for “at least” 2 years. That means that in all probability interest rates will not go up at least through 2013.
In response to this news, the stock market shot up over 4% for the day and reversed much of the 600 point drop it had yesterday. Stock investors view low interest rates as being good for companies because it allows them to borrow money inexpensively and use it to grow.
While low rates may be good for those who want to borrow money, they are terrible for anyone who has money they want to safely invest This is a tremendous blow to retirees and other people that rely on interest income to make ends meet. The government has just guaranteed that people like my father will make little to no money on their safe investments and this is devastating for some of them. Interest rates should be decided by supply and demand and NOT by the government.
The United States is in more debt trouble than most people can comprehend and clearly President Obama doesn’t have any idea what to do about it. All he ever does is go on TV and try to tell people things are really better than they seem. Plans or ideas never seem to part of his speeches he delivers and there is absolutely no leadership coming from him.
Apparently the Fed felt it had to do something to calm investors and give businesses some idea of what the future holds so they can make better plans. By now knowing that interest rates are NOT going up for the next two years, business owners can make concrete plans involving expansion and other aspects of their business.
Low interest rates that approach 0% are always signs of a faltering economy as countries lower rates to try to encourage borrowing that will hopefully turn into spending. Japan now has interest rates set at 0% and they have had more than 15 years of extreme financial hardships. While the rates in the United States are not quite 0%, they are so close that they might as well be.
