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Fed Still Saying Exceptionally Low Rates for Extended Period - Update

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The last scheduled FOMC meeting of 2009 finished today, and there continues to be no hint of when the Fed will start hiking rates. The Fed continues to say the same thing about keeping the federal funds rate exceptionally low for an extended period:
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, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The FOMC statement did cite a number of areas of the economy that are getting stronger, but that wasn't enough to change the language about keeping the exceptionally low rate for an extended period.

In October when editorials from Barron's and the Washington Post called for the Fed to start executing an "exit strategy", I thought we might soon see a change in the Fed policy. The editorials basically said that with the financial crisis clearly past, rates shouldn't stay at the crisis-level lows. It appears that the editorials didn't have an effect.

Many are fearing that the Fed won't raise rates fast enough to prevent run-away inflation. This Forbes article reviews this concern along with the news of today's release of November's CPI numbers. Here's what the article concludes:
Although pricey energy is reminiscent of the stagflation of the 1970s, the rest of the CPI remains weak with seemingly little prospects for a fresh surge. With the labor market so badly damaged -- unemployment is at 10% and jobs still in negative territory [...] -- workers are in little position to ask for wage increases, one of the key drivers of inflation and unions are not nearly as strong as they were 35 years ago. The CPI is up, but inflation is not yet back.

This is a busy news week for the Fed and Ben Bernanke. Time announced today that Bernanke is Time's Person of the Year. And tomorrow the Senate Banking Committee votes on his nomination for another 4-year term. According to this Bloomberg article a couple of Senators on the committee have announced that they'll be voting against the nomination. However, it's expected that there are enough votes to send the nomination to the full Senate. That vote isn't expected until January.

The next FOMC meeting is scheduled for January 26-27, 2010.


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Comments
11 Comments.
Comment #1 by Anonymous posted on
Anonymous
FEDs will raise the rates when we all lose our shirts due to inflation and trashed Dollar.
It will be to late to save our savings, so relax and enjoy the circus that the FEDs are throwing at us. It is obvious that the savers are irrelevant and are being thrown out to the wolves for dinner.
We can not complain to anyone, since the FEDs, Congress, Walls street and all around them are conspiring on the American people.
FDIC is threatening the banks will be put on the dreaded closure list if they disobey and raise the interest rates, either on savings or lending. So, I don't expect anything good to come out of the FEDs until it will be to late for all of us.

1
Comment #2 by Anonymous posted on
Anonymous
Yes, Fed is always late (in raising rate as well as reducing rate).

How one take advanatge of it is the issue of much musing.

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Comment #3 by Anonymous posted on
Anonymous
The Fed will not begin raising rates until mid-2012. The drip-drip-drip of lowering deposit rates will just continue. Lock-in the best rate you can for the next 30 months and hope we don't go into a Japan-like situation with more than a decade of no growth and near zero rates.

Accept the current rates or go for more riskier places for your funds. It's fairly obvious the Fed won't take the punch bowl away from the big Wall Street banks. Goldman Sachs and JP Morgan are making too much money on the carry trade with the zero percent money.

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Comment #4 by Anonymous posted on
Anonymous
What a pathetic situation. Bernanke (Time Man of the Year) is paralyzed. If you think for a minute that the Fed will raise rates in the next couple of years and upset "Helicopter Ben's" friends on Wall Street you are mistaken. I have to agree with post of 4:12 PM, December 16, 2009.

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Comment #5 by Anonymous posted on
Anonymous
What do you expect when Bernanke is just a puppet to wall street. He is no longer in charge of the rates, wall street is. When wall street start shortening the stocks, that is the signal to Ben to raise rates.
The whole system is rigged, the savers are just byproduct of unwanted crowd.

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Comment #6 by Anonymous posted on
Anonymous
I agree with the poster above mine and would add this:
Ben is gutless and with all the money printed he will create another catastrophe by not pulling the funny money from the economy.
The more he postpones the reckoning day the more he will create uncertainties about the withdrawal of liquidity from the U.S. economy.
That might be the breaking point and therefore he can not decide by himself only, he needs his buddies at the treasury and wall street to give him the green light and act.

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Comment #7 by Term Papers (anonymous) posted on
Term Papers
These posts keep getting better and better keep posting..!

1
Comment #8 by Anonymous posted on
Anonymous
When we had full employment few years back, FEDs kept the rates very low and created the housing bubble.
What was their excuse for the low rates than, "the economy can not grow because there are not enough workers to be hired and the companies to expend"
Today, huge unemployment, what is there excuse for low rates, "not enough jobs to justify high interest rates".
This is a proof of how incompetent the FEDs are and proof that employment or unemployment are just an irrelevant excuse to justify their action or not.
I think, there is something sinister behind all of these excuses we hear from the FEDs, and I strongly believe the real reason is the deficit and out of control Government spending spree. As long we have to follow the mentality that spending will create prosperity, we all will go down the drain with such mantra form Washington.
Wall street is also very influential and has the last word about the interest rates.

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Comment #9 by Anonymous posted on
Anonymous
"I think, there is something sinister behind all of these excuses we hear from the FEDs, and I strongly believe the real reason is the deficit and out of control Government spending spree. As long we have to follow the mentality that spending will create prosperity, we all will go down the drain with such mantra form Washington.
Wall street is also very influential and has the last word about the interest rates."

I truly believe that says it all!

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Comment #10 by Anonymous posted on
Anonymous
Government spending is getting out of control. We need to cut all entitlement programs which make up the largest percentage of federal spending.

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Comment #11 by Anonymous posted on
Anonymous
Just cut out all the government waist and fraud would cut the deficit by a considerable amount.

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