Interest Rates Going Up Again
Thursday, July 5th, 2007
By Michael Lombardi, MBA for Profit Confidential
In a widely expected move, the Bank of England raised interest rates this morning again, bringing its central bank rate to 5.75%. This is the bank’s fifth interest rate increase in the past year.
Fear of inflation was noted by the bank’s policy makers as a prime concern. Interest rates in the U.K. are now at their highest level since April 2001, and are the highest of the G7 countries.
The big question on everyone’s mind is: could the same thing happen here in North America?
If we look at the currency markets as a leading indicator, we see two phenomena developing:
The American dollar is now at a 26-year low against the British pound and at a record low against the Euro. In this situation, I believe the market is telling us the U.S. Federal Reserve will not raise its benchmark bank rate while the remainder of the world’s industrialized countries continue to raise rates.
In Canada, the Canadian dollar sits near a record 30 high against the U.S. dollar — a market signal that interest rates in Canada are posed to rise. It would not surprise me to see Canadian interest rates move up one full percentage point.
Interest rates are going up again around the globe, while U.S. policy makers continue to sit tight for now. Long-term rates in the U.S. have been going up, though — a standard 30-year mortgage in the U.S. today runs at 6.26%, while only six months ago that mortgage could have been had for 5.70%. Not good for the housing market, but a function of tighter money available for mortgages due to the collapse of the U.S. subprime marketplace.
A lower U.S. dollar is a smart thing for America so long as we can continue to pull off the devaluation slowly. The only concern, as I’ve written before, lies with our bonds. In the event the remainder of the world starts to demand incentives to buy the bonds our government issues to finance our debt, interest rates in the U.S. will rise. But until then, businesses can continue to expect a U.S. prime lending rate of 8.25% while American consumers get accustomed to rising mortgage rates.
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Tags: euro, interest rates, U.S. debt, U.S. dollar
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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
