Wednesday, December 8, 2021

Don’t Hold Your Breath Waiting for Double-Digit Rates to Return

Ask the CFP

“Holding on to anything is like holding your breath. You will suffocate. The only way to get anything in the physical universe is by letting go. Let go and it will be yours forever.” ~ Deepak Chopra

Question: What do you think sustained low interest rates mean for the economy and individuals?

Answer: Today’s extraordinarily low interest rates create opportunities for consumers and companies to borrow funds and refinance mortgages. But there are two sides to every coin; low interest rates also make it more difficult for savers, especially retirees, to earn enough interest on their cash reserves to stay ahead of inflation. As we pull out of the pandemic crisis, the Federal Reserve announced it plans to keep interest rates near zero until at least 2023.


Personal savings rates are at historic highs, bringing an urge for many Americans to “do something” with idle money, with some reconsidering the ratio of stocks to bonds in a portfolio, given possible subdued prospects for fixed income. We’d like to provide a perspective on navigating this potential environment of “lower for longer.”

In the U.S., the central bankers at the Federal Reserve have control over what’s called short-term interest rates, the rate banks charge one another to borrow money for a day. In general, every other interest rate is affected by what the fed funds rate is, from the return on your savings account to the rates charged on a mortgage. Cut that rate and it’s less expensive to borrow money. Raise the rate, it becomes more costly to borrow, and people will tend to save more. It’s one tool the Fed uses to pursue its goals. 

“The Fed has two goals, maximum employment and stable prices – and by stable prices we mean inflation around 2%,” said Scott Brown, Raymond James chief economist. After a series of listening sessions across the U.S., the Fed announced in August that it would now try to achieve inflation that averages 2% – meaning that if there is a period well below the target 2%, you need to run above 2% to balance that. This potentially points to low interest rates for longer. 

Forget the high rates of the ’80s.

In 1985 at the tender age of 25, which was 36 years ago, (yes, I am a proud sixty-year-old woman), I bought my first home with a mortgage rate of 12.5%. Back then, the Fed pumped the brakes with double-digit interest rates to combat inflation that was smothering the economy. The 10-year Treasury yield, for example, peaked at 16% in 1981. In contrast, as this is being written, the current 10-year Treasury rate is 1.61%. 

Navigate the markets nimbly.

This change in the landscape may require a shift in your strategy for emergency cash and investments. The traditional advice for investors is that as you get closer to a goal like retirement, you should trade stock holdings for lower risk investments such as bonds. You may want to talk to your financial advisor about your specific situation in more depth.

Investment professionals also say to focus on the role of fixed income as a shock absorber in your portfolio which may come in handy in times of turbulence. There’s something to be said for principal preservation – the return of your money rather than the return on your money. 

If you’re worried that you’re not doing enough with your nest egg with rates lower for longer, talk to your CERTIFIED FINANCIAL PLANNER ™ professional. We can help you explore strategies for your cash and investments that align with your risk tolerance and timeline. Stay focused and plan accordingly. 

This information should not be construed as a recommendation. The foregoing content is subject to change at any time without notice. Content provided herein is for informational purposes only. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Investing involves risk, and investors may incur a profit or a loss. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. There are additional risks associated with investing in an individual sector, including limited diversification. There is no assurance that any investment strategy will be successful. The opinions expressed are those of the writer as of March 24, 2021, but not necessarily those of Raymond James and Associates, and subject to change at any time. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance does not guarantee future results. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.” 

This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at (239)389-1041, email Website:


Submitted Photo


Leave a Reply

Your email address will not be published. Required fields are marked *