Another Significant Economic Event

In the recent posts on budgeting and inflation, I stated that it is important to include certain economic information when making assumptions. That includes monitoring certain trends, which include interest rates and employment statistics, as well as the price of certain commodities and energy. However, to get a better idea of the future that we are budgeting for, it is necessary to monitor the activities of the Federal Reserve, as well as the current Administration in Washington.

This goes beyond the political speeches, which are often quoted. Speeches by politicians are designed to get approval and to get votes. They have little to do with achieving results. For example, I think every President of the US since Jimmy Carter has made strong statements about the necessity of the US achieving "energy independence" and then went on to tell the voters how they were going to get us there. 36 years later we are about at energy independent as a two year old, who can say "no" to everything, but can't feed or bathe themselves.


The Federal Reserve Makes an Important Announcement

On January 25, the Federal Reserve Chairman made a significant announcement. He stated that it is expected the Federal Reserve (the Fed) will keep interest rates low for another three years, through 2014. It was also stated that the Fed may begin a bond buying program. In such a program, the Fed prints money and exchanges that cash for the bonds held by others. Saving money may soon be even less rewarding. The Federal Reserve’s announcement Wednesday to keep short-term interest rates near zero through 2014.

The Consequences of a Low Interest Policy

It is probable that this policy will result in still lower interest rates on bank accounts.

The important question to ask is "How low?" Interest on savings accounts may drop closer to 0% over the next 12 to 18 months. At present, the average rate on savings accounts is 0.36%, down from 0.4% in November. One-year and five-year certificate of deposits have an average yield of 0.33% and 1.57%, respectively. Even worse, savers will have to put up with nearly nonexistent returns for at least another three years before they can see any meaningful improvement.

What does this mean for HOAs? It means that owners cannot expect interest rates to help offset the costs of running their associations! They will have to dig deeper into their pockets and pay slightly higher fees than might otherwise be expected.

Do you love "change" of this type? If not, all I can say is, think about this when it is time to vote during your HOA and other elections this year!