FEDERAL-FUNDS-RATE TARGET: 1.50 to 1.75%
After interest-rate cuts in three consecutive Federal Open Market Committee (FOMC) meetings, the Federal Reserve announced at the conclusion of its December 10-11 meeting that it was leaving the federal funds rate unchanged for the time being.
Furthermore, indications are that the Fed may leave rates as they are for the year ahead.
However, just because the fed rate has leveled off doesn't mean consumers are powerless to improve their own rates going into 2020.
Have Fed Interest Rates Reached "Just Right"?
Like Goldilocks trying different bowls of porridge, the Fed has had trouble finding a level for interest rates that seemed just right.
After raising rates nine times in roughly three years previously - including four times in 2018 - the Fed cut rates three times during 2019.
This search for the right level is an attempt to strike a balance between the Fed's primary goals of maximizing employment and stabilizing inflation.
The three rate cuts earlier this year took place against a backdrop in which inflation was weakening and recession fears were growing.
Leaving rates unchanged at their most recent meeting suggests the Fed believes it has done enough to stimulate the economy for now.
Fed's economic projections forecast stable rates through 2020
Another indication that the Fed believes rates have reached the right level can be seen in its updated economic projections for the next three calendar years. The Fed is forecasting that rates will remain more or less unchanged from the end of 2019 through the end of 2020.
Of course, the Fed reserves the right to vary from its economic projections and actions if conditions dictate. In other words, they could raise or lower rates if the economy and inflation heat up or cool down too much.
However, the Fed isn't expecting a lot of growth from the economy. Its latest projection for 2020 is 2.0% real growth in GDP.
Even while forecasting this rather lackluster rate of economic growth, the Fed expects rates to remain unchanged. That reinforces the idea that the Fed does not feel it's appropriate to apply any further monetary stimulus under current conditions.
In plain terms, that means the Fed expects rates to stay the same for a while.
Recent Economic Evidence Argues Against Further Fed-Rate Cuts
The Fed's decision not to cut rates any further is supported by recent economic developments.
A strong employment report was released on the Friday before the Fed meeting. The Bureau of Labor Statistics (BLS) reported that 266,000 jobs were added in November, making it the best month for job growth since January.
On top of that, on the morning of the second day of the Fed meeting, the BLS announced that the Consumer Price Index (CPI) had posted its second consecutive month of solid gains. In fact, year over year through November, the CPI met the Fed's inflation target of 2.0% for the first time since April.
While the Fed prefers a different measure of inflation from the CPI, the upturn in the CPI is likely to be reflected to some degree by inflation measures in general.
Smart Moves for Consumers as Rates Level Out
Just because the Fed may be holding off on rate changes for the time being doesn't mean consumers should stand pat. Here are three smart moves you can make in this interest-rate environment:
- Take advantage of the wide spread in deposit rates
Savings account rates and other rates might be pretty low on average, but that average can be deceptive.
The most recent MoneyRates America's Best Rates survey found a difference of nearly 2% between the top savings account rate and the average rate. This is an indication of how much you can improve the rate you earn just by shopping around.
- Move into long-term CDs for higher yields
Rates in general may have leveled off, but remember that long-term CD rates are almost always higher than short-term CD and savings account rates.
If you don't need some of your savings for a while, consider moving it into a long-term CD for a better interest rate.
- Act now if you've been thinking about a loan
Have you been planning on taking out a loan but decided to wait and see how low interest rates will go?
Rates are already unusually low, and the Fed seems to think that rates have gone as low as they are likely to for at least the year ahead. That might make this a good time to pull the trigger on that loan rather than holding out for even lower rates.
The Fed may be done changing interest rates for a while, but there are still things you can do to change your rates for the better.
Previous Federal Reserve Board Updates articles:
|FOMC Date||2019 FOMC Meeting Update Articles|
|10/30/2019||October, 2019 - What the Latest Fed-Rate Cut Means to You|
|09/11/2019||September 2019 Fed Meeting: How to Protect Your Money|
|08/01/2019||July 2019 Fed Meeting Raises New Questions|
|06/20/2019||Consumers Not Limited by Fed's Rate Decision|
|05/2/2019||Federal Reserve Pursues Rate Stability|
|03/21/2019||Shifting Stance: Fed Implies No Rate Increases in 2019|
|1/31/2019||Fed's Low Profile Won't Stop Interest Rates from Rising|