The annual return on financial investments made by the Development Authority of the North Country has slid from $5 million to $1.7 million over the past five years, but an investor predicted those figures will rebound to pre-recession levels by 2016.
Cyril Mouaikel, senior vice president of RBC Wealth Managements Watertown branch, made that prediction Thursday while reviewing the authoritys investments for board members.
Mr. Mouaikel, whos been DANCs financial adviser for 12 years, said hes optimistic federal interest rates will rebound after falling to an all-time low during the recession that started in 2008.
The state-funded authority, which is prohibited from investing in the stock market, fared better than most investors during the economic recession, Mr. Mouaikel said. The authority routinely invests in certificates of deposit and bonds from multiple financial institutions.
The authority used to generate about $5 million income from investments until the recession came in 2008 and 2009, he said. But the good thing is, the authority never lost a penny while the Federal Reserve continued to reduce interest rates. Other agencies did.
Federal interest rates likely will climb to pre-recession levels in 2015 and 2016, Mr. Mouaikel predicted. If that occurs, he said, DANCs annual investment income will return to the $5 million range.
If the economy turns around, rates will probably start rising over the next five years, he said.
DANC has a pool of more than $70 million it invests in certificates of deposit and securities, and anywhere from $750,000 to $1.5 million is reinvested every month as funding matures, said Carl E. Farone Jr., the authoritys comptroller. Each month, Mr. Farone and CEO James W. Wright review the authoritys investment portfolio with Mr. Mouaikel, who offers guidance on where to make investments.
We have been saying for the past four years that interest rates should get better, but everything the Federal Reserve is doing affects the rates, Mr. Farone said. If you take away the stimulus supporting the economy, thats going to affect the rate of inflation. And if inflation goes up too fast, thats going to impact employment numbers and the whole economy.
As the national economy improves, the Federal Reserve is expected to start reducing its purchases of mortgage and treasury bonds each month, which is done to keep interest rates low, Mr. Mouaikel said. The Fed now makes monthly purchases of about $85 billion, he said.