Interest Rates in an Economic Recovery

Some leading economic indicators are pointing to the bottom of the current recession – at least that is the hope. 

If the economy is hitting a bottom that will also spell the bottom for interest rates on deposit accounts and mortgage rates.

The positive side:

This past week Cleveland Fed President Sandra Pianalto said “I expect economic conditions to stabilize by the end of the year and then begin to recover next year as the fiscal stimulus boosts spending and as we work off excess inventories.”

Also this past week, the  National Association of Realtors reported that sales of pending homes rose a seasonally adjusted 2.1% in February, with increases in the Midwest increasing 14.8% and Northeast increasing 15.6%.

The negative side:

Economists are estimating that 660,000 jobs will be lost in March.  The monthly employment report will be released tomorrow by the Labor Department.

ADP and Macroeconomic Advisers said the private sector lost an estimated 742,000 jobs in March.

One can argue that the glass is half full or half empty, depending if you’re an optimist or a pessimist. One thing is for sure – interest rates are so low, the potential for further declines is small but there is a lot more potential for the upside.

That being said, I would stick to shorter term certificate of deposits than locking in these low rates for a long term. If a recovery does happen later this year or early next year rates will start going up quickly and will start going up before the recovery takes hold.