For our customers concerned about rising interest rates, recent news by the Fed that the anticipated tapering of bond buying does not automatically translate into higher rates should be welcome news. In fact, the Fed expressed concerns more about low inflation and potential deflationary risks, and indicated they expect low rates to remain many years into the future.
For individuals concerned with low rates and low yields, time is not your friend. Making no investment now in hopes of higher rates in the future is not going to translate into a higher overall yield. Doing the best you can now, and preserving flexibility for the future, is perhaps a more prudent strategy.
In a recent article from the Wall Street Journal:
The Fed said that “it likely will be appropriate to maintain the current target range for the federal funds rate well past the time” that the jobless rate dips below the 6.5% threshold, “especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal.”
Short-term rates have been pinned near zero since late 2008. Most Fed officials expect to keep interest rates low well into the future. In their latest economic projections, also out Wednesday, 12 of 17 Fed officials said they expected the central bank’s benchmark interest rate, which is called the fed funds rate, to be at or below 1% by the end of 2015. Ten of 17 officials expected the rate to be at or below 2% by the end of 2016.
The Fed acknowledged concerns that inflation continues to run stubbornly below the central bank’s 2% target, saying that it is “monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.” The Fed’s preferred inflation gauge, the price index for personal consumption expenditures, increased just 0.7% in October from a year prior, according to a Commerce Department data release earlier this month.
So how does one do the best they can in a low rate world? Consider Secondary Market Annuities– these high yield fixed income investments offer safety and when laddered or layered with lump sums, provide future flexibility for reinvestment in potentially higher rate environments.