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Where does the fed expect rates to be in 5 years?

Jan 12, 2012 by Daniel from San Luis Obispo, CA in  |  Flag
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Mike essentially sums up the answer I was going to give. There is no way of knowing with certainty how the market is going to react to changing socioeconomic circumstances within the coming year, much less 5 years out.

Interest rates are currently at historic lows as is demonstrated by this chart from the Federal Reserve Bank of St. Louis:


With interest rates as low as they are today it may not be necessary to know exactly how much interest rates are going to go up, just that they are likely to increase.

Instead, it's important to reduce interest rate risk in your portfolio by changing the average maturity of your portfolio and considering the impact different levels of interest rate increases could have on your portfolio.

If you are technically inclined the factor we use to calculate this is called the duration of a portfolio of bonds. This calculation includes both the maturities of bonds and the future cash flow of the bonds.


Comment   |  Flag   |  Mar 01, 2013 from Chester, MD

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Mike Fleiner Level 13

This would be a most difficult number to estimate 5 years out. The Fed has signaled its desire to keep rates around 0% into 2014. However, most financial experts expect rates to be higher in 5 years than they are today. No one is predicting what higher means, but higher rates are most definitely on the horizon.

Comment   |  Flag   |  Mar 01, 2013 from Reno, NV

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Barry Rabinowitz Level 19

hi: Your guess is as good as any. The Fed has said they will keep rates at Zero through 2013-14. Some say rates will stay at current levels, others are predicting big rise due to inflation. Only time will tell who was right.

Comment   |  Flag   |  Jan 12, 2012 from Fort Lauderdale, FL

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