Could Shift In Fed Policy Boost Bank Interest Rates

Depositors in bank accounts -- the people who aren't going bankrupt, aren't defaulting on their mortgages, and don't need a bailout -- have really gotten the short end of the stick over the past year or so. A recession naturally tends to drive interest rates down, but this has been exacerbated by Federal Reserve policies. The latter could be starting to change.

The Fed has sought to keep interest rates low to stimulate the economy. It did this not just by keeping its bank lending rate at barely above zero, but also by buying up massive amounts of Treasury and mortgage-backed bonds.

Though the recession is not yet over, the Fed is beginning to cast an eye a little further down the road, and worry about the inflationary impact of everything that's been done to revive the economy. Because of this, they may slow their bond market purchase program.

Letting the free market resume control of interest rates could result in those rates rising. This would dampen some of the economic stimulus, but if inflation perks up, it would drive interest rates higher anyway. From the Fed's standpoint, its better to have interest rates rise a little on their own than to be driven up by inflation. For depositors in money market and savings accounts or certificates of deposit, higher interest rates without inflation would be a clear win.

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