Reduced 'Bounce-Back Rate' Reflects Length, Depth Of Dip
SAN ANSELMO, Calif. — A new analysis from Market Rates Insight suggests that in the last recession of 2007/2009, the national average deposits' rate bounced-back to just 33% of its pre-recession level.
Bounce-back rate is the ratio between the pre-recession level, and one year post-recession level. By comparing the bounce-back rate of major economic indicators during the last three recessions, we can gain insight into how long deposits' rates will remain low, the company said.
One year after the official ending of the 1990/1991 recession, the Fed Fund effective rate bounced back by 49% of its pre-recession level; the annual inflation rate bounced back by 66%; the unemployment rate bounced back 135% (higher unemployment rate) and the national average deposits' rate bounced back 54% from of its pre-recession level.
Recent Bounce-Back Rate Tells Different Story
Conversely, noted Market Rates Insight, in the last recession of 2007/2009, the Fed Fund effective rate bounced back only by 4% of its pre-recession level; the annual inflation rate bounced back 26%; the unemployment rate bounced back 190% (nearly twice its pre-recession level), and the national average deposits' rate bounced back only 33%-lower than the over 50% bounce back in the last two recessions. "The relatively low bounce-back rate of the Fed Fund effective rate, the inflation rate and the unemployment rate, which are strong predictors of deposits' rates, indicate that it will take longer for deposits' rates to return to pre-recession level," the analysis suggests.
"The last recession was much deeper and longer than the previous two." said Dan Geller, Ph.D. Executive Vice President at Market Rates Insight. "Therefore, expect the recovery time and return to pre-recession level to take beyond 2011, and probably into 2012."