United States

Questions (and answers) surrounding fixed income investing


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In an effort to help a struggling economy during the Great Recession in late 2008, the Federal Reserve(Fed) lowered the federal funds rate (Fed Funds) near zero and started implementing quantitative easing (QE) policies, effectively pumping money into the U.S. economy. The goals of QE are to encourage investing and borrowing as costs of credit are low. Unfortunately, the effects of QE are not favorable to savers as interest rates are driven lower. In all, three rounds of easing were implemented from 2008 through 2014, resulting in the Fed holding over $4 trillion of assets. The Fed effectively ended the third round of QE in October 2014.

The topic of when short-term interest rates will begin to rise again has been around since the Federal Reserve lowered the Fed Funds rate near zero in 2008. Therefore, the questions are:

  1. Will the prospect of rising short-term rates be edging closer now that the QE programs are officially finished and the reasons why they started in the first place (high unemployment, inflation below target) appear to be improving?
  2. What impact may the rising of short-term rates have on fixed income investments?

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