Interest Rates: Current vs. Historical
Currently the federal funds rate, LIBOR and the prime rate, as well as 5- and 10-year treasury yields, are at historical lows (see the accompanying infographics). Some argue these low rates are not sustainable and must eventually rise to historical averages, while others see this as a new era in which low rates are the new norm, due to international liquidity in the new global marketplace.
Note: The federal funds rate shown is the weighted average of rates brokered on trades, not the target rate as set by the Federal Reserve. The historical averages date back to 1954. Click here for a line-graph illustration of historical interest rates.
Predicting rates is like asking a sportscaster to predict which team is going to win the game. Regardless of what the team looks like on paper, there are infinite variables that influence the outcome. The same can be said for interest rates. Here are some factors that have a direct effect on rates.
Inflation is the one factor that will likely cause all index rates, both short- and long-term, to rise. Whether their debt is floating or fixed-rate, storage owners can expect their index rate to increase if there is inflationary pressure. Shock events that sharply increase the price of necessary goods like food, housing and energy can trigger inflation. With so much pressure on prices, it’s not hard to imagine how the United States could see a period of inflation.
Will inflation be an issue in 2012 and beyond? It's time to examine the data so you can make your own predictions.