Using the premise that the US is copying, Xerox style, the interest rate history of Japan after their bubble busts, we can make some forecasts on when and how effective Fed efforts to raise short term interest rates might be.
After Japan's rates fell below 1% in April, 1995, they stayed near zero until May, 2006, despite a little noise in 1999. That was 11 years of ZIRP, suggesting a serious Fed effort to raise rates in November, 2019.
Japan did make an effort to raise short term rates to 0.5% in 2006, and rates got as high as 0.639% in September, 2008. After about 2.5 years of half-percent interest rates, they crashed back to zero during the global recession caused by the US bubble bust and today sit at 0.05%. Based on that timeline, when the Fed finally does make a serious effort to raise rates, they may hit a wall at 0.5% and be unable to maintain it for more than a couple of years.
This is all conjecture based on the US following the Japanese lead, unable to stop "it" from happening here.
Quotes of the Day
ReplyDeleteIf you would have told me five years ago we'd have a real possibility of seeing negative deposit rates in this country, I would have called you crazy, but the economics don't lie. If you have a ton of people putting money into deposit accounts and nowhere for the banks to achieve adequate returns on those deposits sufficient to pay interest to investors, then the result is negative interest rates. It happened in Japan when it was in a liquidity trap, and it very well could happen here.
That was said in 2011. The rate of the typical 12 month CD has since been cut in half.
Stagflationary Mark,
DeleteThe EU central bank has been talking about negative interest rates in a serious way. I think the Fed might "try" to raise rates some time in the near future, or even a few years from now, but unless something very fundamental changes, I don't know how it can be sustained. The longer we follow in Japan's path, the harder it will be to leave it, I think.
Yeah, that's what I think too.
DeleteFrom a purely selfish standpoint, there are definitely worse scenarios for savers.
This will be an interesting year. I don't think I'll have the resources to buy both I-Bonds and EE-Bonds this year. I will need to decide which I like better over the long-term (and the jury is still out).