dcsimg
 
Advertiser Disclosure: Many of the savings offers appearing on this site are from advertisers from which this website receives compensation for being listed here. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). These offers do not represent all deposit accounts available.

Federal Reserve updates including rates, news and forecasts

December 17, 2014

| MoneyRates.com Senior Financial Analyst, CFA

It is the financial sector's biggest spectator sport: guessing what the Fed will say and do at the conclusion of each Federal Open Market Committee meeting.

Today's meeting brought only a change in words, not deeds. Often, however, that is enough to send markets scrambling.

Federal Reserve wordplay

The key wording change involved backing away from a phrase the Fed had been using to characterize how long it planned to keep short-term rates near zero. "For a considerable time" had been the recurring refrain, but this time the Fed merely said it expected to be "patient" in deciding when to return rates to more normal levels. However, as if concerned that even this was too rash a change in wording, the Committee went on to say it felt this stance consistent with its earlier pledge to keep rates near zero for a considerable time.

What is probably more significant than this bit of wordplay about rates is what the Fed had to say about the conditions that will drive its policy going forward -- specifically, employment and inflation.

Employment

The Fed notes expressed satisfaction with progress in the labor market, and indeed, job creation has been on a roll throughout most of 2014. One could even infer that the Fed would have been ready to raise short-term rates if it were not for the other major component of the Fed's mandate, which is price stability. Here, the Fed continued to express concerns that inflation has been too low.

Inflation

The Fed meeting ended on a day when the Bureau of Labor Statistics announced that the Consumer Price Index had declined by 0.3 percent in November, and had gained only 1.3 percent over the past year. This once again raises the specter of deflation, which has been a major reason why the Fed has been hesitant to raise rates. The chief culprit in the recent drop in prices is the falling value of oil.

Still, there is reason for hope. The Fed notes say they expect inflation to firm up as the labor market continues to improve, and it describes the impact of lower energy prices as "transitory."

Implications for rates

In total, the Fed's latest comments seem to suggest that the Fed would not be surprised if rates were to rise in 2015. Employment is already on track, and inflation is likely to rebound as the labor market strengthens and as prices get past the temporary impact of the collapse in the oil market. In that scenario, expect mortgage rates to move first, because they have to anticipate a long-term time horizon. Shorter-term rates like savings account rates can afford to play more of a waiting game.

The main potential snag in this scenario is if oil does not stabilize in 2015. This would bring more deflationary pressure to bear, and could be indicative of enough global economic weakness to set off another stretch of low 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's concerns remain with low inflation -- not low rates

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

Add your comment
(required)
(will not be published, required)