Given current economic conditions, the Fed chair Janet Yellen has said they will likely keep rates low for a considerable time even after QE3 ends to help meet their stated goals. Furthermore, once those goals are met, they still believe economic conditions warrant lower than normal levels of interest “for some time”.
Here Yellen says:
"Even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."
Since we have already seen nearly six years of ultra-low rates, how much longer can they last? That is, how much longer is the "longer run"?
Given the magnitude of the crisis, record levels of unemployment and debt, the best way to answer that question is by observing what the Fed did during a similar time period—the Great Depression.
How long did rates stay low then? Nearly 15 years. Actually, 20 or more if you consider anything under 2.5% low.
As the Fed has made clear, given current economic conditions, they don’t expect to raise rates for a considerable time. If you think our current experience is close to the Great Depression and it will take just as long to recover, then we may actually be looking at ultra-low rates for many years to come...or decades, as bond king Bill Gross has stated.
Question is, what will this do to the stock market and other assets as yield-starved investors continue to chase returns?
