I had the opportunity to spend most of the past week with Penn Mutual's field leadership in Chicago. The meeting was upbeat, as our leaders continue to grow their agencies and regions. The need for high-quality life insurance products and financial advice remains robust.
One of the top questions I was asked during the week was, "Will interest rates remain low for a prolonged period of time?" The short answer is that I believe interest rates will remain low. The primary reason is that significant global deflationary pressures exist due to demographic, global overcapacity, productivity and consumption trends. The pressures are significant and will not quickly abate. This doesn't mean that interest rates won't rise periodically and post negative price performance, but I do expect over the next several years that increases in yields will present a buying opportunity.
The highlight of the past week's economic data was the release of the U.S. Consumer Price Index (CPI), which showed that inflationary pressures in the U.S. remain low. The September report showed that CPI for the month was 0.0% and that CPI excluding food and energy (core) was 0.2%. This put core CPI at 1.9% for the year. The weakness in inflation continues to be widespread, with only housing showing inflationary pressure.
This doesn't mean that the Federal Reserve (Fed) shouldn't increase interest rates off the zero level. The Fed has kept interest rates at a very low level for the last six years, and a more normalized policy should lead to more equilibrium in the economy and reduce global imbalances, which is good for markets in the intermediate term. Expect the Fed to normalize rates very slowly once they begin to act.
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