Interest Rates Are Historically Low. Why? when Will That Change

The cost of money and the return on invested capital are the most important factors that influence the success of any business. The reason why interest costs are so low, what to expect and the action to take are critical in these unusual economic times.


Scottsdale, AZ -- (SBWIRE) -- 01/24/2013 -- Conventional wisdom says that when there is a recession the FED should lower the cost of money and increase liquidity in the money market. Since the start of the current recession and the financial markets collapse in 2008 and 9, that is what the FED has done. Rates were lowered continuously to the point that short-term rates are effectively 0. The market is awash with liquidity. The conventional wisdom has not worked. Nominal unemployment is still in the high 7% area. With over 4 million of chronically unemployed, more than one year, real unemployment is higher. The economy has recovered some but is not where it should be four years after the start of a recession.

Our economy is dealing with something very different from the usual style recession. The economic rules have stopped working. Some economists have named this situation a “Liquidity Trap”, when increasing liquidity massively, along with reducing the cost of money, does not stimulate the economy much. This has happened only two times in well documented economic history. The first was the great depression of the 1930s. The second was the economy of Japan in the 1990s.

The FED has already told us that they will continue their policy of high liquidity and low-interest rates until the unemployment rate gets down to 6.5%. The way the economy is going now that will take quite a long time, several years. The one thing that could speed up the pace of a recovery is a jobs program from the federal government. What this comes down to is that monetary policy alone can not do the job. It is going to require a fiscal spending program. Given the political situation in Washington that is a major problem.

Now that you have a basic understanding of the economic problems facing us, you can do some planning for the future direction of your business. Mortgage interest rates are low and they are likely to remain low for a while. But, with the short-term rates at effectively zero it is not likely that they will move much lower. At the time in the future that it appears there may be a jobs program to stimulate the economy, that should be your signal that higher rates are ahead. Based on this information now is a very good time to do some financing and lock up these low rates. Commercial mortgage rates will not go lower. At some time in the future they will be higher.

First Charter Financial Corporation is a leading independent mortgage company conducting business on a nation wide basis. We specialize in arranging financing for commercial properties throughout the US. The projects that we handle include office, retail, multifamily, hospitality and specialty properties. We arrange loans in amounts ranging from a minimum of one million dollars up to as large as 100 million dollars. We maintain relationships with large and small insurance companies, retirement and investment funds, regional, national and multinational banks and we are very active with capital markets funding sources. Victor Weintraub, President of First Charter Financial, has been in the business for over forty years. He is also a noted economist. Contact First Charter Financial with your commercial mortgage concerns. Email Telephone (480) 970 0990.