Exceptionally Low Interest Rates

The big news on Wall Street today was that the Federal Reserve decided to keep interest rates near 0%. In their monetary policy statement the FOMC said that they plan on keeping interest rates exceptionally low for an extended period of time. Interest rates have been near 0% since December, 2008. Chris Isidore wrote an interesting article about the different viewpoints on interest rates on CNNMoney.

Low Interest Rates Don’t Come Without Risks

Often consumers and investors believe that extremely low interest rates are a great recipe for the economy. While I certainly understand that low interest rates can help jumpstart the economy, I believe many fail to realize the risks that come with historically low rates. Many economists believe that continuous low interest rates caused the housing bubble and led the economy to the massive recession in 2008 and 2009. Low interest rates often lead consumers and corporations to taking on more debt, and we all know that can be a very dangerous proposition. Inflationary pressures also run rampant when rates are so low, and inflation can really throw a wrench in economy progress over the long run.

Think of the Positives of Higher Rates

Even though today’s statement mentions nothing of a rate hike, it is likely the Federal Reserve will raise interest rates by the beginning of next year. As the news breaks that interest rates are rising, don’t be surprised if Wall Street gets a little frightened. If you are right on the proper financial trail and ready to meet your goals, chances are there will be positives for you that come with those higher rates. The truth is low interest rates don’t reward fiscal prudence much at all. As rates move higher, safe investment assets such as certificates of deposit (CD’s) and money market savings accounts become much more viable options. Higher rates can be a good thing if you are wise with your budgeting!