San Fran Fed Argues US Aging Population Keeping Rates Low

Federal Reserve economists worry that the central bank may have a hard time lowering interest rates when future economic crises arise.

The reason is fairly simple: Demographics. San Francisco Fed economists believe that the aging population in the U.S. is putting long-term downward pressure on rates, a phenomenon that won’t allow a lot of room to provide stimulus through rate cuts.

“Because demographic movements tend to be long-lasting, their ongoing effects could keep interest rates near the lower bound longer,” Carlos Carvalho, Andrea Ferrero and Fernanda Nechio said in a paper posted on the San Francisco Fed web site. “This has the potential to limit the scope for central banks to respond to future recessionary shocks.”

Essentially, the population collectively getting older and living longer means those folks have to save more. That in turn means financial institutions don’t need to pay as much interest on savings due to the increased flow of savings.

via CNBC

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza