When Will Interest Rates Rise Again?

As talk of economic recovery continues, many people are interested in when short-term interest rates will rise again, courtesy of the Fed. And, with the Fed meeting underway today and tomorrow, interest speculation continues. The concern about interest rates focuses on two main sets of people:

1. Those in debt are interested in interest rates, since as short-term rates rise, the variable consumer debt based upon them also rise. This means that less money goes toward principal reduction, and more goes to making interest payments. As a result, those who are in debt should be interested in paying off as much as they can before short-term interest rates rise.
2. Those with cash investments are also interested in short-term interest rates. CDs, savings accounts and money market accounts are connected to short-term interest rates. Right now, cash investments have been yielding rather low returns, since short-term rates are so low. When interest rates head higher, so do returns on cash investments. It is a good idea to invest when interest rates are higher, and lock in rates on CDs before they drop.

Ben Bernanke has already said that he does not expect to raise interest rates until sometime next year. However, many are waiting to see if the Fed decides to expand its quantitative easing program (with rates near 0%, there is no way for a rate cut). If this happens, the threat of inflation grows, and the chance of higher interest rates — in order to combat inflation — kicks in. While Bernanke doesn’t expect to raise rates til next year, conditions could change if the economic recovery picks up quickly in the near future.

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