Super-low interest rates

Date posted: June 29, 2012

Recently there was an interest-rate record set. N.C. State University’s Mike Walden explains what it was and what it means for the economy.

“Well …, the record was the interest rate on something called 10-year Treasury notes. These are investments issued by the federal government, where you loan the federal government, in this case, money for up to 10 years. The interest rate was a low 1.5 percent.

“In fact, for a while that rate actually went below 1.5 percent. It had never ever been that low. So this is … certainly a record. And another reason this is important is the 10-year Treasury note rates are in some sense a benchmark for other long-term interest rates. So people out there who are trying to borrow money are finding, for example, mortgage interest rates are very low also.

“Now this super-low rate has a number of implications. One, from an investor’s point of view, it means investors can’t get very high interest rates on interest sensitive investments like treasury notes or CDs, et cetera.

“It also suggests however … on a good note that the money markets are not concerned about long-run inflation, because that would normally be seen through a higher interest rate.

“But probably the biggest implication of these low rates is … that it’s an indication that the demand — that the number of people in businesses out there wanting to borrow money — is still very, very low suggesting that this is … continues to be a very challenged economy.”

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