How soon we forget. Americans have short memories when it comes to interest rates, despite the fact that we're often preoccupied with where they're headed.
Remember when investors were fit to be tied because rates on money-market funds had slipped to single digits? Recollect a period when new homeowners were chafing under unbearable 18.5 percent mortgages? Ever meet an old-timer who talked incessantly about the 5 percent mortgage he'd once had?
Over the past decade, I've spoken with hundreds of readers who were dying to obtain a clue as to where rates were headed next. At stake is usually a decision on a certificate of deposit or mortgage. In most cases, folks don't seem to think more than TC month or two back to ascertain whether current rates are good or bad for them.
With the Federal Reserve shoving interest rates lower and lower to desperately try to spark the economy, now is a fine time to get some historical perspective on the matter. Consider the following:
The prime lending rate offered to banks' best customers marched to 20.5 percent in the latter part of 1980, slipped a bit, then returned to those heights in the summer of 1981. It was a time in which inflation was a major fear, so the Fed tightened policy and interest rates skyrocketed.
The lowest level for the prime was 1.5 percent back in 1947, when monetary policy was immobilized by government debt from World War II. In the early 1960s, the prime was at 4.5 percent.
The last time the prime was near the current 6.50 percent was 1977, when it was at 6.25 percent early in the year and 6.50 percent by midyear. Recovery from the 1973 through 1975 recession began vigorously, then showed signs of faltering, so the Fed pushed down rates to improve business strength.
"Interest rates went up irregularly from the end of World War II to the end of the 1970s, then have moved irregularly downward to the present," observed Robert Dederick, chief economist for the Northern Trust, the U.S. undersecretary of commerce from 1981 to 1983 and the compiler of data included here.
"The individual must recognize that interest rates can move a tremendous amount and that there's no stability," he said.
Mortgage rates were last at their current 8.25 percent level at the end of 1976, when an attempt was being made to revive the economy. They were as low as 8.75 percent briefly in 1987. The peaking of mortgage rates was 18.5 percent in the fall of 1981. On the other side of the coin, in 1950 the mortgage rate was at 4 percent.
"There hasn't been much economic stimulus from recent rate cuts because, in the case of mortgages, for example, people are greatly concerned about even meeting their mortgage payments in the first place," said Kurt Karl, senior economist with the WEFA Group, formerly the known as Wharton Econometrics Group.
"Though interest rates may go down a little further, I do see them going higher later in the year," said Kurt Karl, senior economist with the WEFA Group, formerly the Wharton Econometrics Group. "The spring and summer will be an excellent time for people to buy homes and also to refinance mortgages."
As far as credit cards are concerned, interest rates remain in a time warp.
It is shameful that banks haven't reduced those ungainly interest rates more than a sliver. They somehow seem to think that it's still 1980.