{"id":56744,"date":"2021-02-12T08:52:09","date_gmt":"2021-02-12T13:52:09","guid":{"rendered":"https:\/\/olduvai.ca\/?p=56744"},"modified":"2021-02-12T08:52:09","modified_gmt":"2021-02-12T13:52:09","slug":"feds-near-zero-rates-might-sound-good-until-this-happens","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=56744","title":{"rendered":"Fed\u2019s Near-Zero Rates Might Sound Good (Until This Happens)"},"content":{"rendered":"
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Fed\u2019s Near-Zero Rates Might Sound Good (Until This Happens)<\/a><\/h3>\n<\/div>\n<\/div>\n<\/section>\n
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\"Fed's<\/p>\n
In some cases, the idea of a \u201cnear-zero interest rate\u201d is a good thing. For example, if you qualify for 0% interest when you buy a car, you save money.<\/div>\n<\/div>\n

But it\u2019s\u00a0much<\/em>\u00a0different when your retirement savings depends on getting a\u00a0return on investment<\/strong>\u00a0(ROI). In that case, near-zero interest rates can put pensions and other retirement accounts in serious jeopardy.<\/p>\n

The Fed\u00a0dropped interest rates to 0-0.25%<\/a>\u00a0starting last September. And\u00a0according<\/a>\u00a0to the Wharton School of the University of Pennsylvania, those near-zero rates could stick around for a while:<\/p>\n

Expects to hold interest rates near zero at least\u00a0until 2023\u00a0<\/strong>because of the pandemic. That spells lower returns for retirement accounts, and it adds to the underfunding of pensions that has worried retirees for many years now.<\/p><\/blockquote>\n

\u201cLow returns from the market are essentially a tax on retirees,\u201d said Olivia Mitchell, Wharton professor of business economics and public policy.<\/p>\n

Then there are\u00a0real interest rates<\/strong>, which are measured by the difference between 10-year treasuries and Fed\u00a0inflation expectations<\/strong>. We figure this out by comparing the yields on\u00a0Treasury inflation protected securities (TIPS)<\/a>\u00a0to 10-year Treasury yields. Here\u2019s a comparison of real interest rates (2000-present) from the\u00a0official<\/a>\u00a0Cleveland Fed chart:<\/p>\n

\"Ten-year<\/p>\n

You can see that since 2012, the real rate has struggled to get to 1%, and recently dipped into the\u00a0negative.<\/em><\/p>\n

Low rates mean low returns<\/strong><\/p>\n

According to an\u00a0op-ed<\/a>\u00a0on MarketWatch, the drop in real interest rates\u00a0isn\u2019t a good thing<\/strong>:<\/p>\n

This persistently low-rate environment means workers will have to contribute significantly more to their 401(k), or invest in riskier assets, than they did at the turn of the century.<\/p>\n

Many of the assets retirement savers have relied on for decades, including Treasury bonds, CDs, annuities, money market accounts, even the humble savings account, cannot preserve your purchasing power any more.<\/p>\n

\u2026click on the above link to read the rest of the article\u2026<\/p>\n

interest rates, fed, us federal reserve, central banks, birch gold group, inflation<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Fed\u2019s Near-Zero Rates Might Sound Good (Until This Happens) In some cases, the idea of a \u201cnear-zero interest rate\u201d is a good thing. For example, if you qualify for 0% interest when you buy a car, you save money. But it\u2019s\u00a0much\u00a0different when your retirement savings depends on getting a\u00a0return on investment\u00a0(ROI). In that case, near-zero […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[18769,124,303,426,431,3650],"class_list":["post-56744","post","type-post","status-publish","format-standard","hentry","category-economics","tag-birch-gold-group","tag-central-banks","tag-fed","tag-inflation","tag-interest-rates","tag-us-federal-reserve"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/56744","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=56744"}],"version-history":[{"count":0,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/56744\/revisions"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=56744"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=56744"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=56744"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}