For a long time, investors have expected interest rates to reverse their long trend downward and start rising again. But income-starved savers who have hoped against hope that the economic recovery would finally force rates upward shouldn't hold their breath, because those rate hikes are likely getting further away rather than closer.

Reading the Fed
Ever since the financial crisis, the Federal Reserve has been as accommodative in its interest rate policy as mathematics allows. It didn't just reduce its Fed funds rate to near zero; it tossed in two rounds of quantitative easing -- and counting -- to try to push long-term rates downward as well.

But as the economic recovery took hold, many saw a light at the end of the low-rate tunnel. Pointing to rising commodity prices and hawkish comments from a number of Fed officials, those looking for the Fed's extended period of exceptionally low rates to give way to tightening monetary policy thought that things would finally go their way.

Then the Japanese disaster happened, and the U.S. stock market halted its huge six-month rise and corrected fairly violently. Those two events have had a profound effect on rate expectations for the near future.

What the future(s) will hold
One way to tell what experts think about coming rate moves is to look at the Fed funds futures market. By looking at prices for the futures contracts for various months, you can tell when investors believe the Fed will make its next move.

Until the crisis, most expected the Fed to start tightening early next year. But after the Japanese disaster and the ensuing correction in the stock market, traders have pushed out those expectations toward the middle of 2012. Based on yesterday's closing prices, futures traders expect Fed funds to reach 0.5% in May 2012, moving up to 1.25% by the beginning of 2013. And that actually reflects some optimism after yesterday's recovery in stocks; Wednesday's trading suggested a somewhat smaller chance of early rate hikes.

How to deal with low rates
Although the Fed's exact timing isn't critically important, what market participants are telling you is that those higher interest rates you've been expecting for a while may hold off for a while longer. That has ramifications for certain types of investments. In particular:

  • Winner: Mortgage REITs. Ultra-low short-term rates are critical for the interest rate spread plays that Chimera Investment (NYSE: CIM) and American Capital Agency (Nasdaq: AGNC) rely on to produce their stellar profits and huge dividend yields. The longer they last, the longer the dividend gravy train will keep on chugging for shareholders.
  • Winner: Banks. Similarly, banks love to pay depositors next to nothing and lend at higher rates. Over the past five years, Citigroup (NYSE: C) and M&T Bank (NYSE: MTB) have seen sizable jumps in their net interest income, thanks largely to higher spreads produced by the Fed's interest rate cuts.
  • Loser: Cash-rich companies. If you're a borrower, you love low rates. But companies that have huge amounts of cash on their balance sheets can't get much income from it in low-rate environments. While it's unfair to pin all the blame for weak performance from Cisco Systems (Nasdaq: CSCO) and Microsoft (Nasdaq: MSFT) on low interest rates, it certainly isn't helping the tech stalwarts to have tens of billions of dollars earning next to nothing.
  • Loser: Insurance companies. Insurers will have to deal not only with the aftermath of Japan's earthquake but with the ongoing challenge of investing their float at rock-bottom rates. Companies like Travelers (NYSE: TRV) have blamed low rates for reductions in their net income and foresee more trouble ahead as long as rates stay low.

Do the right thing
Whether you're a winner or a loser from low rates depends on your particular situation and how you invest for it. If you're relying on bank CDs and other safe income investments, you're in a world of hurt right now, and it could well get worse before it gets better. But if you seek out the winners and losers from the rate environment you expect in the months and years ahead, it can help you adapt your portfolio to generate the best returns possible no matter what the future brings.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.