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Bob Carey
Chief Market Strategist
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  More Pain For Savers!
Posted Under: Bond Market • Conceptual Investing
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View from the Observation Deck

  1. The Federal Reserve announced another round of quantitative easing (QE3) on September 13, 2012. This initiative, at the present time, is open-ended.
  2. Keeping interest rates artificially low remains the focus at the Fed. While good for borrowers, not so for savers.
  3. Chairman Ben Bernanke has made it known that he is displeased with the stubbornly high U.S. unemployment rate (>8%) and lower-than-desired consumption levels.
  4. The Fed has stated it is prepared to keep interest rates low into 2015 if warranted.
  5. Since one of the traditional byproducts of low interest rate levels is higher inflation ("too many dollars chasing too few goods"), we believe that now is the time to address this issue with savers.
  6. The chart shows the yields offered on 6-Month CDs (secondary market) and the annual rate of inflation for each calendar year since 2000.
  7. It is clear that the relationship between the two became disadvantageous in 2010 and remains as such through the first eight months of 2012.
  8. The Fed is attempting, in part, to incentivize savers/investors to assume more risk to potentially achieve more return.
  9. For those still in savings vehicles - the ball is in your court.
Posted on Thursday, September 27, 2012 @ 11:38 AM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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