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Federal Reserve updates including rates, news and forecasts

September 17, 2014

| MoneyRates.com Senior Financial Analyst, CFA

They say nothing takes longer to turn around than an oil tanker. Federal Reserve policy might give those boats some serious competition.

The Fed concluded its latest meeting today with an announcement that indicates the transition from stimulative to neutral policies is continuing -- just very slowly. With the economic recovery still in uncertain health more than five years after the end of the Great Recession, you could argue about how effective the Fed's policies have been, but for that same reason, their reluctance to make any sudden changes is understandable.

The latest Fed policy changes

Low interest rates are a traditional monetary tool for stimulating the economy, and the Federal Reserve has lowered both short-term and long-term rates. While the Fed has a fair amount of direct control over short-term rates, it had to influence long-term rates by buying long-term bonds. It is this long-term rate policy that the Fed has been backing away from throughout this year.

Continuing the pattern from recent meetings, the Fed announced that it will trim those purchases by another $10 billion per month, leaving the total ongoing purchases at $15 billion. Thus this tactic to bring down long-term rates has almost run its course, though until the Fed starts selling the securities it has already accumulated (or at least letting them mature without reinvestment), there may not be immediate upward pressure on long-term rates.

As for short-term rates, the Fed is keeping them firmly near zero, and anticipates continuing to do so for a "considerable time" after its asset purchases have ceased. For consumers, this means mortgage rates are more likely to rise than savings account rates.

How healthy is the economy?

The shift -- subtle though it is -- in Fed policy is based on the premise that the economic recovery is strong enough to survive without some of the stimulative support it has been receiving from the Fed. Unfortunately, some recent developments have cast some doubt on this premise:

  1. Employment growth for August was below par.
  2. Purchase mortgage applications recently fell to their lowest level since February.
  3. Consumer prices declined in August.

When the Fed has kept the economy on life support for so long, it is worrisome to see the patient gasping for breath when just a little of that life support has been removed so far.

Why not just keep a foot on the gas?

If the economy is in questionable health, why not just keep stimulative policies in place? It may be that the Fed is worried about the build-up of the type of excesses that led to the financial crisis six years ago. The stock market has soared to record highs on the strength of low interest rates, and borrowing in many forms has also reached record levels.

Therefore, the Fed may be looking for a formula that encourages economic growth without encouraging risk-taking. That has always proven to be a difficult balance to achieve.

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 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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