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Fed Leaves Rates Unchanged: When Will the Fed Start Hiking?

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The FOMC meeting finished today, and as expected the fed funds rate remains near zero (0 to 0.25%). The Fed continues to say the same things that it has said in previous meetings:
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

Also, its statement on inflation remains the same:
With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

The Fed did point to improvements in the economy:
Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn.

When will the Fed start hiking?

It may be longer than you think. There's a good discussion of this at the Global Economic Trend Analysis blog. A graph shows how Fed rate hikes have trailed peak unemployment in previous recessions. If that trend holds, we may not see Fed rate hikes until after 2010.

If inflation picks up significantly, the Fed may be forced to hike rates sooner. However, as this BusinessWeek article described, economic data continues to show little risk of "inflation breaking out from too much money."

There are two more FOMC meetings secheduled for 2009: November 3-4 and December 15-16.

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Comments
20 comments.
Comment #1 by Anonymous posted on
Anonymous
It looks like another 2 1/2 to 3 years of low rates. Either one just leaves their funds in savings or takes out CDs at 2 to 3% and waits for the Fed to act down the road. What a choice.

Some will have to take on more risk to keep incomes at a survivable level, while others will be eating beans and rice, while waiting for rates to go up. Meanwhile, those that put money at risk in the markets in the past 6 months are literally laughing all the way to the bank.

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Comment #2 by Anonymous posted on
Anonymous
Feds are paying $1 Billion a day interest on the borrowed funds from China alone, if they raise the interest rates even a 1% it will cost Billions and Billions more in interest payments, therefore, the Feds are fooling themselves by keeping the interest rates low and printing money to pay for the obligations on the debt.
How stupid and incompetent is that.
We will all pay for it sooner or later for the FEDs miscalculations and artificially set interest rates.

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Comment #3 by Anonymous posted on
Anonymous
Listen, You don't fight a credit/debt crisis by encouraging more debt, going into more debt and allowing everyone to spend and borrow more. Cash for clunkers and all the other idiot govt. plans is nonsense. Debt can only be paid off or defaulted. Debt upon Debt upon debt will be at some point be defaulted. The govt. is trying to get everyone to dump their safe invests, CDs, etc. and take even more risk. Not me. I'll ride it out.

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Comment #4 by Anonymous posted on
Anonymous
Sure, some of us can "ride it out" but there are lots of seniors that can't. They played it safe, as they should have, by putting their retirement funds into CDs, but now are steadily hurting as these accounts mature. What are they supposed to do, just suck it up and wait up to three years for rates to go back up? These people have their backs against the wall and unfortunately have to go out on the risk ladder. I don't blame them one bit. There are so many Wal-Mart greeter jobs to go around.

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Comment #5 by Anonymous posted on
Anonymous
I've said it before and I'll say it again: if the lemmings of the world will just STOP giving these crooked financial institutions their hard earned money at ridiculous rates, then the savings rates will automatically go up.

Stop buying govt. bonds, debt and CDs. If everyone stops, it will cause an immediate drop in prices which will cause rates to shoot up.

The more fools give them, the more they will suppress interest rates.

BTW, there are plenty of high interest rate cds out there (i.e.5+). Just look, you'll find them, but not if you follow the herd.

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Comment #6 by Anonymous posted on
Anonymous
Where are these 5%+ CDs? If there are so many of them out there, just point to a couple of them as examples to prove your point.

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Comment #7 by sligg (anonymous) posted on
sligg
You know where you can get 5% CD's? I keep looking but I don't find any that are even paying 3% for one year.

So, please tell us of just one place where we can get this magical 5%?

Sal Liggieri

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Comment #8 by Anonymous posted on
Anonymous
5%+ CDs? Yeah, if you feel confident putting your funds into a Mexican Bank or some off-shore flaky operation with no real insurance or guarantee for your account.

Just plain malarkey. There are no legitimate CDs out there paying %5+ yields.

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Comment #9 by Anonymous posted on
Anonymous
There are some real CDs @ 5%+ yields. They are called "step-up callable CDs" and can be seen at:

http://www.fisn.com/financial.php?page=4

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Comment #10 by Anonymous posted on
Anonymous
When Will the Fed Start Hiking?

When they destroy the value of the Dollar and with that our wealth too.

What else to expect when the FED is printing money like there is no tomorrow.

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Comment #11 by Anonymous posted on
Anonymous
re: 7:24 AM:
Those are not 5% CDs, those are FDIC-insured gambling.

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Comment #12 by Anonymous posted on
Anonymous
It is really sad for those many people that really depend on some decent savings rates. We all want them, but some older people have no other source of income, except Social Security. And our government apparently does not care about them; at least not as nearly as much as people who run banks or who play the high-stakes games on Wall Street. This is a national disgrace and tragedy.

As long as the government insists on bailing out and backstopping the banks, the latter have nothing to fear, and no reason to pay any depositor much of anything. But as we all know, if we make the banks very, very rich and healthy, this will ultimately benefit all of us, in some undefinable way.

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Comment #13 by Anonymous posted on
Anonymous
Yesterday, I went in to attempt to renew a CD at a particular bank. I had been earning 4.25% (yes, if only I had guessed what was going to happen, I could have made all those one-year CDs two- or three-year, and still be earning over 4%, but I didn't). Now I was told that the best rate they could offer me for a year was 1.77%. When I walked in, the first thing I said was, "I have a CD of over $100,000 to renew, what can you offer?" The woman's cold reply was, "We don't negotiate rates."

Well, they were happy to negotiate rates when they needed our money. I asked for a check for all of it, and I got it without a word. I won't get much more anywhere else, but I'll try. Maybe I'll go to Europe for a year and spend all the money there, so at least our banks won't get to use it.

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Comment #14 by Anonymous posted on
Anonymous
If you want interest rates to go up, then cause inflation. It's that easy, people.

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Comment #15 by Anonymous posted on
Anonymous
Hoping the low rates continue! I have a HELOC at prime minus 1% or currently 2.25%. Great rate so I moved the balance of my mortage into this and then I max my HELOC loan and put it in 7 high interest checking accounts earning 3.75% ($25K), 5.01% ($100K) and 6.01 ($40K) Mortage interest for the HELOC is less than $300/mo and interest earned is at $700/mo for a net profit of $400/mo plus mortage interest deduction for tax purposes. Lots of check card transactions but it's easy if you only put $2 of gas in your car per charge.

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Comment #16 by Anonymous posted on
Anonymous
Insured savings is not going to cut it for at least some time. You need to take the risk and move into other areas in order to make some money. T-bills are ridiculously low now. Savings Bonds? I-bond is 0%. Technology fund? Well it is up over 70% so far this year. Right now the borrower is the priority and not the saver.

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Comment #17 by Anonymous posted on
Anonymous
After having some of my 5% CD's mature, I have started moving some of the $$$ into Muni Bonds. I got one that is 4% with a 5 year maturity. Longer maturities get 5-5.5%. Since they are tax free even at a 28% tax rate the effective yield of a 5% tax free muni is 6.94%. If you buy an actual highly rated, insured bond and hold it to maturity you WILL get your investment back. I dont recommend bond funds. The asset value fluctuates with changes in interest rates !!!

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Comment #18 by Anonymous posted on
Anonymous
Anonymous@4:30 PM said "Mortage interest for the HELOC is less than $300/mo and interest earned is at $700/mo for a net profit of $400/mo plus mortage interest deduction for tax purposes"

Bottom line: you will have to pay tax on the net gain of $400/mo, correct?

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Comment #19 by sligg (anonymous) posted on
sligg
w2here are you getting 5 and 6% checking especially the $100000@ 5%?

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Comment #20 by Anonymous posted on
Anonymous
To Anonymous who posted on 6:18 PM, September 24, 2009

I also bought an insured muni bond at 5% (completely tax free) that matures in 2020, so I get insurance on the interest payments and a 5% interest payout for over 11 years! The before tax yield would be even higher. Muni mutual funds are too much of a hassle even though you are more diversified. The total return fluctuates from year to year and you have to keep records of capital gains distributions and net asset value changes over the life of the investment. Owning a bond is more simpler in terms of record keeping. And your interest payment NEVER changes unlike in a fund. I want to have my cake and eat it too.

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