The P.A.

A weekly address from Patrick Adams,
President of St. Louis Community Credit Union

A Little Back-of-the-Napkin Calculating

On December 29th, 2014, posted in: Uncategorized by

napkin mathA few blogs ago, I got all Jack Russell Terrier on the Federal Reserve for not increasing rates. My point was that a lack of rate increases hurts seniors and savers (many times one and the same). With little shame, I pleaded for rate increases sooner than later. Well, the Fed has responded to my growling plea: Stuff it — for now. 

Here’s the conundrum. The Fed has made it very well known that two primary metrics will motivate rate increases: 1) low unemployment and 2) inflation. Well, number one seems to have been accomplished — unemployment looks great overall. Number two is the new nemesis in the effort to raise interest rates. Inflation is in a deep dive. We have very little to none to below zero, based on what numbers you look at or with whom you speak.

So all of the rate predictors out there are indicating that rates will be punched up between mid-year 2015 and sometime in 2016. That means more of the same for savers. By the way, these same pundits have been guessing rate increases since 2012 without much success — don’t have them pick for you in next week’s football pool. They’re really bad at it.

Consumer prices have showed very little movement upward recently. UGH! But then it got worse (as if lower consumer prices were bad). Gas prices started dropping and dropping and dropping. Oil prices are so low, the Texas oil barons are now drinking their bourbon “only two fingers on the rocks” versus the traditional “three fingers neat.” Their favorite steak is “chicken fried.”  Oh, how they must long for the good ol’ days. Steakhouses are becoming steak tents.

So let’s just do a little back-of-the-napkin calculating:

Low gas prices

+ Prices of goods and services not increasing beyond the anemic rate of recent months

+ Energy costs (electricity and heating oil) staying the same

= The making of a good ol’ fashioned rate stalemate

It’s like taking your cousin to the prom — ain’t nothing happening.

At least we’re getting the benefit of filling our gas tanks for something less than a king’s ransom. If you take public transportation, you’re getting no benefit at all. Sorry.

Gas prices are low, and as a result, so are your savings rates. Yeah, it’s a trade-off.  Hopefully, you’re driving a big SUV and have a very small sum of money in a Certificate of Deposit. Then you’re a winner. Otherwise, not so much.

Happy New Year — I think?

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