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Fed Stays the Course with Unanimous Vote

POSTED ON BY

The first scheduled FOMC meeting of 2011 ended this afternoon, and the FOMC statement was very similar to December's statement. There remains no signs of future rate hikes. The Fed continues to use that same line:

exceptionally low levels for the federal funds rate for an extended period

Also, QE2 will continue without changes:

the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011.

There were only two minor changes. First, they added a note about increasing commodity prices when mentioning inflation:

Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward.

Second, the vote was unanimous. Last year Thomas Hoenig was the lone vote against the policy at each FOMC meeting. Hoenig is no longer on the committee this year. At least two of the four new voting members are known as inflation hawks and have been critical of QE2. Either they're not as hawkish as Hoenig, or they didn't want to rock the boat by voting against the policy.

Future FOMC Meetings

If you want an idea about what the market thinks regarding when the Fed will start hiking rates, check out this CME Group FedWatch tool. It shows the probability of rate hikes in the future FOMC meetings based on the 30-Day Fed Funds futures prices. The probability of a higher Fed funds rate by November is shown to be 37.2%. That's down from 59.8% after the last meeting. The chance of a rate hike is 49.4% for next December and 70.2% for next January.

The next two FOMC meetings are scheduled for March 15 and April 26-27.



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Comments
7 comments.
Comment #1 by Shorebreak posted on
Shorebreak
They probably will leave rates as they are, at least through the election in 2012, in order not to disrupt the equity and commodity market rallies.

3
Comment #2 by Stan (anonymous) posted on
Stan
The whole banking system is overflowing in free money, the interest rates will be low for long time. Bernanke ruined the savers and spoiled the banks. Until he leaves the FEDs, the whole nation finances will be upside down.
This is an economy driven with printed money on expense of the savers, whose wealth will decline accordingly.
Obama administration has done nothing but easing the money supply to benefit people at the top and bottom tear and destroy the middle class. Distribution of the wealth is hidden and taken from the savers by implying as if something good will come out of it.
Hey Bernanke, printing money is for third world countries, prosperity is not built from out of thin air money, what are you trying to do to us, the sabers?

9
Comment #3 by Bozo (anonymous) posted on
Bozo
Even though the Fed may keep the Fed Funds rate extraordinarily low for quite some time, it may not be able to suppress a steepening of the yield curve, especially since Bill Gross (of Pimco) not-so-subtly announced today (on CNBC) that Pimco was planning to start dumping its longish bond positions well in advance of the end of QE2 in late June. Cramer echoed his sentiment moments later and suggested everybody go short the UST30Y now. Literally minutes after these comments, the yield on the 30 year spiked, reversing itself after yields had fallen after the FOMC announcement. I took the opportunity to book my green in TBT (thank you very much). What this may portend for us with longish CD ladders is only good, good, good. I would not be at all surprised to find banks and credit unions once again bidding up long (5 and 7 year) CD rates if the 30 year yields keep climbing. After all, despite their protestations, all they're doing with our money is "lending" it to the government, and collecting the spread.

Stay long my friends (I know, it's counter-intuitive), and ladder, ladder, ladder.

Bozo

8
Comment #4 by Inforay posted on
Inforay
In my 30 years of investing in C.D.s there has never been a time when 3% for a five-year C.D. looked attractive.  Bernanke is all about making sure the stock market rises, so that it looks like all is well with the economy.  He is doing that at the expense of savers who want to keep it simple and don't want to deal with fancy pie charts breaking up our investments into large cap, medium cap, small cap, foreign stocks, municipal bonds, treasuries, foreign bonds, REITS. etc. etc etc.  Banks are making a handsome profit out of getting all this free money. I think savers should demand a bailout.  I suggest that we start a campaign demanding that all savers be guaranteed a 5% return on our savings up to $500,000.  At least that would give us some type of cushion.  Just three years ago it was easy to get 5% now it is impossible. 

6
Comment #5 by Gaelicwench posted on
Gaelicwench
Wow! This from Bank Bernanke who, a coupla months ago, stated that keeping rates rock bottom of the barrel low wasn't working.

Do these idiots at the Fed honestly believe we have a bumper stick that says "STUPID" plastered to our foreheads? Somehow I can believe the deal about 2012; this guy has got to go! And never be heard from again....just like Greenspan.

4
Comment #6 by George C. (anonymous) posted on
George C.
This is a response to Bozo's posting.

It sounds good on paper, but you are being fooled by the wall street sharks and manipulators.

Long term CDs are a trap and you will lose money when you include the hidden and manipulated inflation.

Your money are being eaten bit by bit and after the taxes you wind up into negative territory.

The value of the Dollar is being diluted minute by minute and Bernanke will go for QE3 by the end of the year, since there will be a need to finance the $1.5 trillion national debt soon. The China is backing out of purchasing long term US obligation and the only mean to finance the debt will be Benanke’s funny money, out of which you will get your diluted interest payments and diminished value of your principle.

I’m staying liquid and waiting for an opportunity to protect my principle in commodities or foreign currencies.

4
Comment #7 by Inforay posted on
Inforay
In essence, Ben Bernanle is controlling the entire stock market and the banking system.  As long as he and the Federal Reserve keep interest rates  so low, people will flock into the stock market which will keep going higher.  This one man knows when interest rates will start rising, at which time, most savers will come out of the stock market, bringing it down.  If Bernanke has stock holdings he will know exactly when to sell.  Is it right to give one person (or one small group of persons) so much control and power over all of our lives?

3