Yellen and Low Interest until 2017 – It is Inevitable

Not quite 100% inevitable, but it is likely.

There is always a chance an extraordinarily unusual event will happen that changes everything, like the discovery of cold fusion. Absent an event like that, it is likely interest rates will stay low until 2017, as is speculated in this video.

Not predicting direction of rates

I am not predicting rates will go down. I have already written about how unpredictable the direction of future interests rates must be. Rates could meander up or down, but in general stay at relatively low levels for several years.

2017 is important

I picked up on the 2017 headline because it illustrates an important point about the country’s demographics and interest rate. What would you expect with a large segment of the population (baby boomers) all furiously competing to save for retirement? With the increased demand for “future” money, you would naturally expect interest rates to be low.

You can blame it on the 2008 crisis, or you can blame it on the Fed, but there is a much larger demographic phenomenon going on behind the scenes that is pushing markets and government policy in the direction of lower interest rates.

In 2017 the baby boomers born in 1947 will be 70 years old. That puts a big chunk of the baby boomers around retirement age that year.

And after they retire?

What would you expect in an environment where this large segment of the population is no longer saving for retirement but is just holding investments or selling them. Well, you would expect interest rates to go back up because now the demand is placed back on current day consumption rather than future consumption.

Blame other parties all you want, but the current interest rate environment is simply what you would expect in a country with our demographic characteristics.