Officials at the Federal Reserve continue to hit the speech circuit with a sharp message: expect low interest rates to hang around a while.
Yesterday, as we reported in our regular Mortgage Trends This Week, the Federal Reserve’s Vice Chairman Donald Kohn said the Federal Reserve doesn’t really look at a clock or a calendar when it weighs interest rate adjustments. “Central banks cannot make unconditional interest rate commitments based only on a time dimension,” Kohn said.
In other words, the Fed will lift rates when it’s ready, so stop asking it when that’s going to happen.
Last Wednesday, another Federal Reserve official with a message of “patience” also spoke. "While the incoming economic data have certainly been more positive of late, we remain far from our stated destination," Federal Reserve Bank of Boston CEO Eric Rosengren told the Money Marketeers of New York University.
The Federal Reserve does have a goal in mind — Rosengren, in his NYU speech, alluded to a long-range target of 5% unemployment and 2% inflation. Presumably, the further we’re headed in that direction, the higher the chance that the Federal Reserve will hike interest rates. Right now, the U.S. unemployment number is at 9.9%, while inflation rests at 2.39%, according to Forecasts.org.
It would seem that the stars are aligned, economically at least, for lower interest rates for months to come. Still, not everyone shares that point of view. The well-respected Bill Gross, head of the investment firm PIMCO (which boasts more than $1 trillion in assets) says that U.S. interest rates are at the cusp of an “extended climb.” The investment banking firm Morgan Stanley estimates that interest rates will rise a full percentage point by the end 0f 2010 as the U.S. economy improves and more people flock to the stock market to benefit from the presumably rising tide of equities that usually results from a stronger economy.
What’s a certificate of deposit investor to do? The future is always now in the CD world, and the current picture still remains bleak. After signs in March and April that rates would ramp up for the long term, economic events like the “Three Gs” — Goldman Sachs, Greece and the Gulf of Mexico — have overwhelmed the news cycle, dashing hopes of a sustained recovery.