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Federal Reserve updates including rates, news and forecasts

October 29, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Quantitative easing is officially over -- or is it?

Not surprisingly, the Federal Reserve today finally announced the end of its program to bring long-term interest rates down via purchases of Treasury bonds and mortgage-backed securities. However, until the Fed sells those securities or at least starts letting them mature without repurchasing new ones, the impact of that program will not be entirely reversed.

Beyond a discussion of the quantitative easing program, there were two striking things about the latest statement from the Federal Open Market Committee (FOMC): One is the almost exclusively domestic focus of its discussion of economic affairs, and the other is that it seemed to condemn savings account rates and other bank rates to trailing inflation for the foreseeable future.

All quiet on the home front

The Fed cited a number of domestic economic factors that seem to be going well. These included:

  • Solid job gains leading to a lower unemployment rate.
  • Improvement in the utilization of labor resources (i.e., less under-employment).
  • A moderate rise in household spending.
  • Growth in business fixed investment.

It is an encouraging list of developments. Not mentioned anywhere, however, are rising concerns about recessions in Europe and slowing growth in large developing economies. That slower growth seems almost certain to hurt U.S. exports, especially with the rise in the dollar over recent months. Of course, supporting the world economy is beyond the Fed's mission, but it is surprising to see no caution about the effect of the broader environment on the growth factors cited by the Fed.

The Fed may simply be keeping its focus narrowly on domestic affairs, and does not want to speculate on international ones until or unless they start to measurably impact the U.S. economy. Or, it may be implicitly expressing confidence that the U.S. economy has gained enough strength to weather an international slowdown.

No love for savings account rates

While the quantitative easing program was largely focused on bringing mortgage rates down, consumers with savings accounts and other bank deposits should be more attentive to the part of the FOMC statement that addressed the federal funds rate, because this has more of a direct influence on short-term bank rates.

The Fed said that it expects to maintain the federal funds target between 0 and 0.25 percent "for a considerable time." While that is an appropriately vague statement (conditions are too unpredictable for the Fed to lock into a specific timetable), it is noteworthy that the Fed specified it expects to maintain that low range as long as inflation continues to run below its target of 2 percent.

Translation: If the Fed has its way, inflation will reach 2 percent before short-term interest rates do. That means investors in deposit accounts can expect their interest rates to continue to trail inflation. Until the Fed gains confidence that low inflation is not a problem, the best hope depositors have for better bank rates is to shop around for them.

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

A slow turn in Fed policy

Fed cheers quickening growth and inflation

Brightening economic signals fail to move Fed

The Fed announces another lose-lose for consumers

Is Janet Yellen really a hawk?

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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