Global Interest Rates Rising; Now Putting Pressure on U.S.
Wednesday, June 6th, 2007
By Michael Lombardi, MBA for Profit Confidential
Interest rates around the world are rising. And because of this reality, the U.S. can’t lower its rates. While lower rates could spur our depressing housing market and help homeowners struggling with higher monthly home payments, global factors may be forcing the U.S. to leave its interest rates unchanged.
This morning, the European Central Bank raised interest rates for the eighth time to 4%. The ECB Rate (the equivalent of the U.S. Discount Rate) is now at a six-year high.
The ECB applies to the regions that use the Euro as their currency. The population of these European Communities (as they are referred to) is about the same as the U.S., over 300 million people. Hence, we are dealing with a significant marketplace.
With Britain’s bank rate at 5.5%, with the ECB key bank rate catching up, and other countries following suit with upwardly moving interest rates (Canada could be next to hike rates), there is pressure on the U.S. to keep its interest rates unchanged so currency markets remain stable. It is difficult to sell bonds to investors when those investors can get higher returns on bonds elsewhere — bonds denominated in rising currency values like the Pound and Euro. (The U.S. is very dependent on foreigners buying government issued bonds in our effort to finance our deficit.)
Can the U.S. cut interest rates this year? The short answer is likely not. Most analysts that had been expecting the Fed to lower its rates this year are revising their forecasts. Goldman Sachs just announced it expects no interest rate cuts in the U.S. in 2007. More bad news for the housing market and American consumers overburdened with debt.
NEWSFLASH — After growing at the slowest pace in almost four years in the first quarter of 2007, Fed Chairman Bernanke said yesterday the U.S. economy will get stronger in the second half of this year. While I’m at odds with Bernanke’s opinion on where the economy is going, I interpret his remarks to signal interest rates in the U.S. will remain unchanged for the next couple of Fed meetings. Interest rates in the U.S. have remained unchanged since the summer of 2006.
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Tags: euro, interest rates, U.S. economy
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
