A Measure of Reality

Jan. 28, 2012

2 min read

Industryweek Com Sites Industryweek com Files Uploads 2012 07 Fed Forecast Chart 1

Dr. Bernanke and the FOMC announced their interest rate projection yesterday. It deserves a few comments. The fact that the FOMC is expecting to keep interest rates essentially flat well into 2014 means that they expect unemployment to remain high, inflation to remain quiet, and the economy to remain troubled for that long. We are expecting a better 2012 than the Federal Reserve Board seems to be anticipating. We believe that this decision will hurt the lending environment. I have not talked to a single banker who would not lend more if interest rates were higher. Many would-be borrowers would have access to capital if bankers received a greater risk-reward relationship. Low rates incent the borrower but do nothing to incent the lender to take risks. Please take a look at the chart. It is encouraging to note that there are some members of the FOMC with a good grasp of reality in that they would prefer higher rates as early as this year. More would like to see rates going up in 2013.

These are reasonable interest rate expectations given the anticipated inflationary pressures. It's encouraging to see that some members of the committee have a good grasp on reality.

It is always unwise to bet against the Federal Reserve Board. Expect low rates to extend through at least mid-2013, which means you don't have to run out and borrow right now to lock in low rates.

However, our economic forecast suggests that you should invest in your firm now in order to maximize your growth potential over the next 18 months and to prepare yourself for 2014.

Invest in efficiencies, training, customer satisfaction efforts, new products and new marketing efforts.

About the Author

Alan Beaulieu Blog

President

One of the country’s most informed economists, Alan Beaulieu is a principal of the ITR Economics where he serves as President. ITR predicts future economic trends with 94.7% accuracy rate and 60 years of correct calls. In his keynotes, Alan delivers clear, comprehensive action plans and tools for capitalizing on business cycle fluctuations and outperforming your competition--whether the economy is moving up, down, or in a recession.

Since 1990, he has been consulting with companies throughout the US, Europe, and Asia on how to forecast, plan, and increase their profits based on business cycle trend analysis. Alan is also the Senior Economic Advisor to NAW, Contributing Editor for INDUSTRYWEEK, and the Chief Economist for HARDI.

Alan is co-author, along with his brother Brian, of the book MAKE YOUR MOVE, and has written numerous articles on economic analysis. He makes up to 150 appearances each year, and his keynotes and seminars have helped thousands of business owners and executives capitalize on emerging trends.

Prior to joining ITR Economics, Alan was a principal in a steel fabrication company and also in a software development company.