​Money Is Still Cheap

While economic growth appears promising and inflation is accelerating, monetary policy has not yet become restrictive as compared to historical levels. In fact, today the real federal funds rate is roughly 0%, which means the economy may have capacity for further expansion.
  


  • For more than a half-century, U.S. recessions have been preceded by, on average, a positive real federal funds rate of 4% and generally not lower than 2%. Those rates are a long way off from today’s level. The real federal funds rate is the federal funds rate minus the rate of inflation and reflects the true cost of borrowing, which is measured on an inflation-adjusted basis.

  • When the real federal funds rate is low, it incentivizes banks to lend. With the real federal funds rate lingering around zero, the Federal Reserve’s survey on bank lending practices shows more banks are loosening rather than tightening commercial lending standards, which may help boost economic activity.

  • Because the price of money, i.e., interest rates, is still cheap and the Federal Reserve is tightening at a slow pace, businesses are likely to continue to spend robustly, driving economic activity. Retail spending is also expected to remain solid due to inexpensive borrowing costs and strong consumer confidence. We believe these factors are bullish for future economic growth​.


The views expressed are the views of Fred Alger Management, Inc. as of May 2018. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security or any funds managed by Fred Alger Management, Inc. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

Fred Alger & Company, Incorporated 360 Park Avenue South, New York, NY 10010 / www.alger.com

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