Federal Reserve updates including rates, news and forecasts

March 19, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Many should be able to relate to Janet Yellen's plight: You are new on the job, trying to ease into things and not make waves, and yet, before you know it, you find yourself in the middle of controversy.

At the conclusion of today's Federal Open Market Committee (FOMC) meeting, Yellen's first as the new Federal Reserve chair, the Fed announced it was continuing with the pace of tapering its quantitative easing asset purchases. That pace had been set in the prior two meetings under the guidance of then-chair Ben Bernanke.

In short, it seemed like business as usual, and yet the stock market tanked within minutes of the FOMC announcement.

The subtext for the market angst seemed to be a concern that the FOMC is becoming too hawkish under Yellen. Ultimately though, the announcement should have little lasting impact on deposit products such as savings accounts.

Hawks and doves

What does "hawkish" mean in this context? In Wall Street parlance, hawkish equates to a Fed that is more concerned about containing inflation than it is about promoting growth. This would mean more restrictive, less stimulative monetary policies.

In the aftermath of the Great Recession, the FOMC has been extremely dovish, undertaking extraordinary stimulative measures such as lowering short-term interest rates to nearly zero, and embarking on a program of asset purchases to drive long-term rates down. Even when the Fed announced in December that it was going to start tapering back those asset purchases, it was only in baby steps. Monthly asset purchases, which had been running at a pace of $85 billion a month, were cut back by $10 billion a month in December, and then again by another $10 billion in January.

The Yellen-led FOMC continued those baby steps today, cutting monthly asset purchases by another $10 billion. In short, the pace of tapering continues as it did under Bernanke, and yet the market reaction was decidedly negative. The Dow plunged by about 200 points before recovering somewhat, while bond yields spiked upward by 9 basis points.

Stock and bond investors have a vested interest in the Fed keeping asset purchases up, which may explain their reaction. However, by continuing to make any asset purchases at all, the Fed is still following an extraordinarily stimulative policy.

Impact on rates

Besides the continued tapering, some commentators took exception to the removal of a commitment that had appeared in prior FOMC statements that indicated that the Fed would keep short rates near zero well beyond the point when unemployment dropped below the 6.5 percent threshold. However, the new Fed statement links keeping those rates near zero to a goal of "maximum employment," which could be interpreted as an even more ambitious stimulative goal than 6.5 percent unemployment.

The bottom line is that the market reaction seems like much ado about nothing. It might be enough to temporarily push mortgage rates higher, but yet again, it is almost certainly not enough to budge savings account rates.

About the Federal Reserve

The Federal Reserve serves as the central bank of the United States. It was founded in 1913 by Congress for the purpose of strengthening the nation’s financial and monetary stability. Today, the Fed serves several duties in the nation’s economy.

These roles include regulating financial institutions, seeking to foster prosperity in the financial market, providing services to financial institutions, and influencing credit and monetary conditions for the purpose of a stable economy.

The Federal Open Market Committee (FOMC) meets several times each year and steers many key parts of Federal Reserve policy, including guiding the target range of the federal funds rate. The committee consists of 12 members.

Federal Reserve policy options

Options the Federal Reserve has for manipulating the economy include:

  • Altering the federal funds rate target
  • Altering the discount rate and its spread from the federal funds rate
  • Making open-market purchases of mortgages securities and Treasury bonds
  • Revising the language in the Fed's official statement to extend the period of time that interest rates are anticipated to be low
  • Increasing the money supply

Federal Reserve Links

The Federal Reserve Board

Members of the Federal Reserve Board of Governors

Speeches and Testimony by Federal Reserve Board Members

Statistics: Releases and Historical Data

Federal Reserve Bank Chicago

Federal Reserve Bank New York

Historical interest rate changes

Previous Federal Reserve Updates

Fed forges ahead with tapering

Fed tapering: a win for banks, but not consumers

Fed moves predictably through enigmatic economy

Steady as she goes: Fed maintains its course

Fed remains mum on tapering

Like the economy, the Fed is still treading water

4 questions the Fed statement didn't answer

Is the Fed hinting at its exit strategy?

Fed meeting overshadowed by GDP disappointment

Fed ignores fiscal cliff, conducts business as usual

Fed plays the waiting game

More of the same medicine from the Fed

Fed meeting brings no miracle cure from Dr. Bernanke

The Fed's latest bet: I'll have another

Federal Reserve update: April 2012

Federal Reserve update: March 2012

Federal Reserve update: January 2012

Federal Reserve update: December 2011 

Federal Reserve update: November 2011

Federal Reserve Update: September 2011

Your responses to ‘Federal Reserve updates including rates, news and forecasts’

Showing 7 comments | Add your comment
Tom

24 May 2013 at 8:16 am

If all your income is in a FDIC account at a bank because you are not stock market savvy and you aren’t earning anything on interest then you can’t spend and recoup so you stagnate. Having to use your savings up leaves you with nothing, hello medicaid and public assistance.

josephine budka

11 April 2013 at 2:57 pm

I see the stock market and the real estate improving every day Why do we see these ridiculous rates our IRA and CD's Will the rates be improving soon or do we have to put our money into stock market.

Wayne

26 April 2012 at 9:20 am

What about earning some interest on my savings? Retirement looms ... maybe ... Help!

glenn smith

20 March 2012 at 1:34 pm

If people think that rates are going to go up, they will step up purchases of houses. This is what Obama wants: a housing upturn. As long as the Fed says rates will stay low until 2014 we will have no movement in housing and other investment. People will fear that they will miss the "low" in housing prices so they will buy now - if they fear that rates are going to go up!

Home Buyer

2 October 2011 at 10:28 pm

Thanks so much for helping make this info available. I'm thinking about buying a home but I think I'm gonna wait.

Gregory Matthew

1 June 2011 at 4:37 am

whoah this blog is excellent i really like studying your posts. Stay up the good work! You recognize, many individuals are looking round for this info, you can help them greatly.

Antique Clock

1 June 2011 at 3:07 am

Yeah, the Federal wanted to raise the discount rate to at least 1.25% because of many reasons. This has always been a huge debate and desire of others. Best wishes, Rocky

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