High Inflation with Low CD Yields?

[John Galt III]

Maybe someone has already discussed this. If so I could not find it on the forum search.

What are the chances that in 2010 there will be high inflation, say over 10 percent, but low yields, like the current, around 2 percent, on CD's and savings accounts, and other "safe" investments?

I know the conventional wisdom is that interest rates go up when inflation goes up, but could the government engineer things so that interest rates remain low, while inflation rages ?

I am hoping for the silver lining of higher rates for my CD's if inflation takes off.

Thanks

 

[samclem]

What are the chances that in 2010 there will be high inflation, say over 10 percent, but low yields, like the current, around 2 percent, on CD's and savings accounts, and other "safe" investments?

I would guess the banks wouldn't have many takers if CD rates are lower than inflation. If they want people to buy CDs, the rate they offer would have to at least exceed the expected inflation rate or else people will put their $ elsewhere (TIPS, gold, commodities, or even I-Bonds with a zero percent real rate component would be better than a guaranteed loss in CDs).

 

[mickeyd]

What are the chances that in 2010 there will be high inflation, say over 10 percent, but low yields, like the current, around 2 percent, on CD's and savings accounts, and other "safe" investments?

Zero, or close to it.

 

[harley]

I can't see inflation going up that high that fast. Maybe by 2014 or so. When I lived through the 80s inflation period, CD rates rose right with the inflation rates.

 

[Purron]

I can't see inflation going up that high that fast. Maybe by 2014 or so. When I lived through the 80s inflation period, CD rates rose right with the inflation rates.

Agree with what harley said.

 

[ziggy29]

If inflation went that high, the Fed would have no choice but to raise interest rates sharply, like the Volcker Fed did in the early 1980s. If the Fed Funds rate was really high, short-term CDs and money market yields would almost certainly have to follow -- unless, of course, "this time it's different."

 

[John Galt III]

Thanks for the answers.