Why are interest rates so low?

Because there is VERY LOW demand for loans. For several reasons:

- people are unemployed and not buying staff they can’t afford – no need for loans

- commercial construction (except for warehouses) is way down because there won’t be a need for large office buildings and corporate construction for some time since people are working from home

- demand is down in general because people saved money over the last couple years and are withstanding COVID to some degree without borrowing money

- small business are closing right and left, and new ones are NOT starting up, so there is less need for capital

Like you said, it’s supply and demand. When lots of people need to take out loans, the price of money goes up and interest rates reflect that. When no one needs to borrow money, the price of money goes down. That’s where we are now.

@elbanditoroso I did not expect that answer. I hadn’t thought of it at all in terms of demands for loans. I never thought or knew demand for borrowing ever had anything to do with it.

@JLeslie think of it this way. Let’s say you have a savings account or a Money Market account. If you do, you’ve seen Money Market interest rates drop for 2.25% a year ago, to maybe .40% today.

Why? The money market funds loan out your money to business and people that are borrowing. The are paid interest by the companies doing the borrowing. They pay you or me the 2% on our MM accounts, and pocket the rest. That’s how they make their money.

But if they don’t have companies to loan to (no demand) then they’re not getting much interest income, and there is less $$ for you or me to earn on our MM and savings accounts.

Remember that the Fed has been focusing on keeping the economy from completely collapsing from the pandemic, so has been willing to lend money at 0 % so that firms can stay open while business is down.

People aren’t spending their money on the usual consumer goods or vacations, so many people have been buying homes, or buying a larger place to accommodate teh family being home all the time.

People in urban areas such as New York and San Francisco have been buying houses outside the city. If you’re working from home, no need to consider a commute in your planning. Just yesterday, the San Francisco Chronicle has “one of the hottest real estate markets” is Lake Tahoe.

Housing prices are through the roof in my area because New Yorkers want second or first homes out of the city. I don’t think it’s a result of mortgage rates being low.

But yes, the main point is what @zenvelo says, the Feds lower interest rates in general when they want to stimulate the economy through lending.

So that people will borrow money. The economy can’t do well unless the money is being moved around from person to person, business to business.

Interest is where lenders make their money. At this point they’re aiming for the Walmart business format….sell cheap but sell in bulk.