Like quantitative easing before it, the Fed’s zero interest rate policy may actually be inhibiting economic growth and job creation in unintended ways. Rick Rieder explains. In late May, the Federal Reserve (or Fed) revised its interest rate forecasts due to expectations of faster economic growth, raising its projections for the federal funds rate in 2015 and 2016. The Fed may be anticipating a need to normalize rates sooner than many market watchers expect is good news. Why? In my opinion, excessively low rates may actually be inhibiting U.S. economic growth and job creation in these five unintended ways.
Market Realist – The graph above shows the effective federal funds rate (monthly) for the past five years. The Federal Reserve has currently affixed the range for the target federal funds rate between 0% and 0.25%. The Fed proposes to increase this rate to 1.1% by the end of 2015 and 2.5% by the end of 2016.
The current low rates and the yields on Treasuries (TLT) have forced investors to look to U.S. equities (SPY)(IVV), corporate bonds (LQD), high yield instruments (JNK), and emerging markets (EEM) for income.
Read on to the next part of this series to learn the consequences of low interest rates for the U.S. economy.