Living%20In%20A%20Low-Rate%20World%20Article

Living%20In%20A%20Low-Rate%20World%20Article - Wall Street...

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Wall Street Journal MONEY AND INVESTING AUGUST 22, 2011 Living In A Low-Rate World by Matt Phillips Borrowers Benefit, Savers Suffer as Interest Rates Fall; Mixed Blessing For Firms Federal Reserve Chairman Ben Bernanke has put the financial world on notice: Brace for two more years of rock-bottom interest rates. That is great news for borrowers, but it promises rough going for anyone seeking returns from fixed-income investments— from retirees to giant pension funds to companies sitting on record amounts of cash. It has been almost three years since the Fed cut its key rate to almost zero, and on Aug. 9, the central bank said rates are likely to remain there until at least mid-2013. Rates for everything from Treasury bills to money-market funds are near zero. The yield on the 10-year note briefly slid below 2% last week, a level last seen in April 1950. \Central banks traditionally use low rates to prompt more borrowing and nudge investors to seek higher returns in riskier assets like stocks, thereby boosting the broader economy. But the benefits may not flow so easily. Consumers are showing few signs of wanting to borrow, bank and insurer profits are likely to suffer, and, with the stock market sliding, pension and other investment funds face years of low returns. Some analysts worry the U.S. may be in for a Japan-like scenario of years of low rates, sluggish growth, and poor returns. "If you do Depression-type studies, then you've seen this pattern before —or Japan," says Priya Misra, head of U.S. rates strategy at Bank of America Merrill Lynch. "Both comparisons are not great." Consumers For consumers, low rates mean cheap loans for everything from a new home to a new car. But with millions of people nearing the end of their working lives, low rates also portend meager returns on fixed-income investments. With the stock market well below its 2007 highs, that could be particularly painful.
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This note was uploaded on 01/26/2012 for the course FIN 4620 taught by Professor Patriciarobertson during the Spring '12 term at Kennesaw.

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Living%20In%20A%20Low-Rate%20World%20Article - Wall Street...

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