back to blogging and the direction of interest rates
It’s been a quite a while since I’ve posted and it’s nice to do so again. In fact the last time was 2013 and what a difference 16 months can make. Since the last time I wrote an article for this blog there has been a new Fed chair installed, the Republicans now control both houses, Greece has defaulted on their debt, inflation has become incredibly tame, ISIS has emerged, unemployment has dipped to pre-recession levels, Russia has been in conflict with Ukraine, and a new presidential election cycle has started to heat up.
What do each of these mean for the direction of interest rates? There is no one answer. Individual events may have an impact on markets including the bond markets which move interest rates, but more than one factor will affect their general path. For example, on a daily basis the crisis in Ukraine may move rates lower due to what people refer to as a “flight to quality”, a search for the safe haven of bonds that often occurs when international tensions and conflicts can impact global markets. Events like this, however, tend to have short term impacts on markets over a period of days or weeks.
The Greek debt crisis has been having a more lasting effect on the direction of rates as European Union leaders and Greek officials have struggled to reach a consensus on how to work out Greece’s ability to pay its bills. This will have a longer impact on rates not only in Europe but here as well as Greek default will weaken European debt, strengthening ours by comparison and driving down US rates.
The installation of the new Fed chair will have perhaps the biggest impact on interest rates as its up to Janet Yellen to decide when its time to raise the federal funds rate as the economy and inflation start to heat up. He’s done a brilliant job showing restraint and successfully winding down QEIII and Operation Twist. It will be interesting to see what happens in the months ahead.
All of that being said, when is the best time to lock YOUR interest rate? If you’re comfortable with the rate and payment you’re receiving it’s a great time to lock.