By Keith Singer, JD CFPWhen will interest rates rise?
A lot of investors believe that a steep rise in interest rates is inevitable. However there is no rule that interest rates must return to historical norms. The only reason that the Federal Reserve would raise interest rates is because they want to prevent excessive inflation. An ideal inflation rate of 2 percent would allow wages to continue to rise yet not cause too much damage to the economy. Currently there does not appear to be a lot of inflation. Recently there has been very little wage growth. Cheaper oil has resulted in lower gas prices and should drive down the cost of electricity and everyday items as the input costs are lowered for the companies that produce these goods. Moreover, the dollar has been very strong. That means that U.S. exports will be less attractive to foreigners which could also produce downward pressure on prices. However, since U.S. debt is so attractive on a relative basis, foreign investment should continue to come to the U.S., which will strengthen the dollar even further.
Therefore, I predict that there will be no significant raises in interest rates in 2015. What does this mean to investors? Stocks will remain attractive on a relative basis, mortgage rates will continue to remain low, and bonds will continue to have low yields. If you are looking to earn any meaningful interest on your CDs and money market accounts, you won’t be satisfied with these types of accounts any time soon. Fortunately, there exist several preferable alternatives to CDs and savings accounts.
Keith Singer is a certified financial planner (CFP™) and an attorney, and is President of Singer Wealth Management. Keith Singer is registered with and securities are offered through Kovack Securities, Inc. Member FINRA/SIPC. 6451 N. Federal Highway, Suite 1201, Ft. Lauderdale, FL 33308 (954) 782-4771. Advisory services offered through Singer Wealth Advisors. Singer Wealth Management and Singer Wealth Advisors are not affiliated with Kovack Securities, Inc.