Federal Reserve updates including rates, news and forecasts

June 18, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Today's Federal Reserve meeting yielded no material change in monetary policy, despite recent evidence of a revival in economic growth and inflation.

Immediately following the conclusion of its June 17-18 meeting, the Federal Open Market Committee announced it was sticking to its recent course: another $10 billion cut to monthly bonds purchases, and the maintenance of short-term interest rates near zero.

Although the cautious cuts to those stimulative bond purchases and the continuation of historically low short-term rates represent a stimulative stance on balance, changes since the last Fed meeting seem to signal that the time for a less stimulative approach may be coming.

Changing conditions

The last time the Fed met, at the end of April, it had just been announced that economic growth had ground to a virtual halt in the first quarter (a subsequent GDP estimate revealed that the economy had actually shrunk). Also, inflation was running at a 1.5 percent year-over-year rate, below the Fed's target of 2.0 percent.

The context was a little different for this meeting. Four consecutive months of job growth in excess of 200,000 suggests that economic growth is back on track, and year-over-year inflation has risen to 2.1 percent. In fact, the recent trend of inflation numbers, with the past four months posting Consumer Price Index gains of 0.1 percent, 0.2 percent, 0.3 percent and 0.4 percent, respectively, seems to suggest inflation is building momentum.

All of this might influence the Fed toward a less stimulative policy, but it knows better than to overreact to a couple of months' worth of data. It will take more sustained evidence of growth and inflation before the Fed starts tapping on the brakes of monetary policy.

The other side of tapering

It should be noted that while the Fed has been steadily tapering back its bond purchases since the end of last year, the fact that it is still making any bond purchase represents an unusually stimulative monetary policy. Also, even when it reaches zero new bond purchases, that still won't represent a restrictive monetary policy -- that will start to come as the Fed begins to unwind the bond positions it has accumulated with these purchases in recent years.

In other words, tapering does not represent the reversal of this purchase policy -- that will come when the Fed becomes a net seller of bonds.

When that happens, it might finally signal the beginning of higher savings account rates, CD rates and money market rates. Banks have been able to accumulate deposits in recent years without having to offer very high rates, but as bond yields start to rise -- a likely outcome once the Fed starts selling bonds -- money is likely to leave the banks in search of more attractive yields unless banks raise rates to compete.

Again though, given the Fed's cautious approach to change, this scenario could take many months to play out. However, tapering represents the first steps toward this outcome -- even if they are baby steps.

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

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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