bank rates

Bill Gross Says Interest Rates Will Remain Low Next Year And For Decades To Come

Say it ain’t so, Bill.

We could be seeing abnormally low short-term interest rates for decades to come, according to the latest monthly outlook from Bill Gross, co-founder of Pacific Investment Management and manager of the $250 billion PIMCO Total Return bond fund.

Gross notes that Wall Street and the Federal Reserve project the federal funds rate to be 1% higher by late 2015 and up 2% by December 2016.

“Bet against that,” said Gross in his report.

“If you want to trust one thing and one thing only, trust that once QE is gone and the policy rate becomes the focus, that fed funds will then stay lower than expected for a long, long time,” Gross said.

QE refers to “quantitative easing,” the Fed policy of buying Treasury bonds and mortgage-backed securities to drive down long-term interest rates.

The federal funds rate is the primary way the Fed influences short-term rates and how much we make on our savings.

That’s how much commercial banks are allowed to charge each other to borrow money on deposit with the Fed, and that has been essentially 0% since December 2008.

If banks can get all of the money they need from each other for essentially nothing, then they can pay us essentially nothing for our deposits. Which is pretty much what they’re doing.

Just last December, Fed Chairman Ben Bernanke said that the central bank would start bumping short-term rates when the unemployment rate hit 6.5%.

Savers understandably got a little excited as the jobs rate fell.

But then Bernanke told a news conference after the Fed’s rate-setting committee met on Sept. 18 that “the first increases in short-term rates might not occur until the unemployment rate is considerably below 6.5%.”

You could hear coffee cups breaking against walls all across the country after that pronouncement.

But why does Gross think it could be decades until we see normal rates?

The proof is in the last few months.

Gross points out that the 10-year Treasury yield jumped from 1.6% to nearly 3% in four months just on the chance that the Fed would begin to taper its $85 billion bond-buying program.

Mortgage rates shot up, housing starts were hurt and mortgage refinancing activity slowed.

The economy simply isn’t ready for higher rates.

First the Fed has to stop buying all of these long-term bonds, and then it can look at raising the fed funds rate.

Basically, Gross is saying that in two years, short-term interest rates won’t even be 1% higher than they are now.

There’s a long road ahead.

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Comments (2)
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2 Existing Comments
  1. Lightrider said:
    on October 4th at 04:36 am

    Obamma & his goons are destroying this once great land. He should be in an orange jump suit in administrative segregation!!! REALLY!!!!!!

  2. letme get this said:
    on October 8th at 10:22 am

    straight you can bash the president and not get deleted and people wonder why we live In a third world country see you a t the gulag comrade but alas this is verboten tambien what a frigging hypocrite u r