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Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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FOMC Statement & Press Conference: Fed is on Hold

POSTED ON BY

One important thing to note from today's FOMC meeting statement and Bernanke's press conference is that the Fed will remain on hold for a while. The Treasury securities purchases (QE2) will end this month as planned, and there was no mention of QE3. For those waiting on higher rates, that's the first step on the long road to higher rates. But the next steps may take a while, and they will depend on improvements in economic growth and employment.

The second step to higher rates will be when the Fed ends the reinvesting of principal payments from its securities holdings. In the statement, it was mentioned this was being maintained with no indication when this would end. A reporter at the press conference asked why they haven't provided any language about when this may change like they do for interest rates. Bernanke just said that they haven't made any such commitment.

The third step to higher rates will be when the Fed changes its language about rates. It continues to say the same old thing about interest rates:

The Committee continues to anticipate that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

In the press conference, a reporter ask Bernanke about what is meant by "extended period". Bernanke was asked this same question in the April press conference, and Bernanke repeated the same answer of at least two or three meetings away from taking any further action.

So once this third step is reached and the "extended period" language is changed, it would be at least two to three meetings for any hope of a rate hike, and that assumes the economic recovery doesn't stall during that time.

30 Months Since the Fed Slashed Rates to Near Zero

One interesting thing to note about today's FOMC meeting is that it has been 30 months since the FOMC meeting in December 2008 in which the Fed slashed the target federal funds rate to near zero percent. I read my prediction that I made 30 months ago that ING Direct and other online banks would be cutting their rates over the next week or two. Rates did fall soon after that meeting, but they continued a slow steady fall for the next 30 months. You can see how ING Direct's Orange Savings Account rate declined since that December 2008 meeting:

  • 2.75% APY in December 2008
  • 2.50% APY in January 2009
  • 1.30% APY in January 2010
  • 1.10% APY in January 2011
  • 1.00% APY today

One question that no reporter has asked Bernanke is if he had any concern for those who depend on their savings to live. I have never heard Bernanke even acknowledge that these people exist.

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 December is 14.7%. That's down from 25.9% after the last meeting. The best we can hope for is a rate hike sometime in 2012. According to the futures market, the chance of a rate hike by next April is 33.3% which is down from 72.8% after the last meeting. And the chance of a rate hike by next June is 40.4%.

The next two FOMC meetings are scheduled for August 9th and September 20th.



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Comments
14 Comments.
Comment #1 by flat_broke posted on
flat_broke
ever since the fed target funds rate hit zero-ish, there has been popular sentiment the fed would begin raising rates within 9 to 12 months..... and of course that has not happened. if i was a bettinbg man (i'm not), i'd bet we don't see any rate increase until 2013 at the earliest.

9
Comment #2 by Anonymous posted on
Anonymous
I watched part of his speech live and my impression was that he is not honest into answering and addressing the issues.
He was putting the blame on Japan slow economy and the European crises and Greek’s austerity problem as that those economies were crucial to our survival.
He was not confident when QE1 and 2 failed to solve the unemployment problem and he looked lost at few of the questions and repeated himself few times.
He was blaming the republicans in congress for opposing the lift of the debt ceiling and did not support any cuts from the budget.
As a FED chairman he is suppose to be impartial and not political, but he failed at that test.
Supporting lose monetary policy will bring inflation, but he said he is petrified of dis-inflation and falling prices.
All in all, my believe is that he should resign and not make bad economy worst than it is now.

23
Comment #3 by Shorebreak posted on
Shorebreak
The punishment for savers lasting five to ten years, predicted by PIMCO a while back, is starting to look like reality with Bernanke as head of the Fed.

9
Comment #4 by Anonymous posted on
Anonymous
as a person who saved his money for retirement,i have nothing but disgust for the fed.it is over 2 years that int rates are at zero.the FED thinks only of the losers, and banks and brokers all at the expence of savors  who did the right thing, i am sorry to call myself an AMERICAN. i am sorry i fought and served this country.All we do is fight war after war , take care illegal imigrants and forget our own people.I want the FED espec big BEN to book passage on the real QE2 and never come back.They have destroyed my retirement while spending trillons on wars and deadbeats.I and many others were smucks to be good citizens of this dying COUNTRY.i sincerely hope the STOCK MARKEtD CRASHES and takes the CONGRESS with it.

15
Comment #5 by Anonymous posted on
Anonymous
What the Fedup and Uncongress have done to the savers of this country is an abomination!  Many penny pinched for years to be able to support themselves in their "olden" years and now find they would do better burying their money in the backyard IF they still own a home which many don't now!  They are so cncerned about making rates low so people can borrow and buy more that no one cares about the plight of the retirees!  Not all of us got to retire.  Many were tossed out like old baggage before they got to be 65 just so they couldn't get a full retirement package.  But who cares.  There is always Welfare and food stamps!

6
Comment #6 by Anonymous posted on
Anonymous
It's amazing to me that absolutely none of the powers that be are holding up for the savers/retired savers. There is not even a mention by the politicians, or anyone else, of our situation. Meanwhile, AARP is a total joke and their execs are hiding under the desk on the savers issue. Bottom line, only time offers any hope for us since there is no one to champion our plight. What a sorry mess.

7
Comment #7 by Anonymous posted on
Anonymous
If the Fed outlook is low inflation, then why do they have the current fixed rate on I-Bonds set at 0%?

4
Comment #8 by Anonymous posted on
Anonymous
Once again, a completely flat meeting. So disheartening that the responsible people in this world are being brought down by those who have shamed the country. Rates need to pick back up SOON, especially CD rates, but that does not appear to be happening anytime soon. My SS (when I reach that age and if it is not bankrupt) looks to be anything from promising. That matched with the horrible CD rates, something has to give. Perhaps if CD rates went up, the savers may be enticed to stimulate the economy with some disposable income and possibly purchase real estate at a higher interest rate knowing darn well their money is actually making money.

4
Comment #10 by Anonymous posted on
Anonymous
The main thing about this low interest rate for savers is that no one in Washington seems to understand that while peddling to the other citizens they forget that the money we lose with such horrific low interest rates on our money, keeps US from making more purchases and helping the economy.  It's like the older folks and retirees are out of the picture entirely.  I have written so many emails to Washington about this serious concern and no  one seems to care.  They are too bogged down in trying to figure out what to do about all their greedy wasteful overspending and the deficit.  Wonder who will take the biggest "hit" with what they finally come up with to "cut the deficit".  We'll know before long.

5
Comment #11 by Anonymous posted on
Anonymous
To #6:

 

The AARP is a socialist/redistributionist organization.  Do not look for help there.

 

Our former Republic has (all but) become a democracy.  There is good reason America's founders wanted a Republic.  They knew that a pure democracy would descend eventually into socialism as the majority voted to rape the achieving minority.  And that's exactly what is happening to America today, as we rot from the top down.  The redistribution freight train is really on a roll.  And I'm not sure either political party has what it will take to stop it.

 

The Democrats are hopeless.  The Republicans were almost as bad their last time in power;  disgusting.  Only Conservatives have the solution.  And I do not believe Conservatives can achieve power.  Barring unforseeable events, it is too late.  It is over.

7
Comment #12 by Anonymous posted on
Anonymous
#11 -

Thats a pretty stark assessment of where we stand, or are headed, and perhaps this is not the place for that kind of discussuon, but, in all honesty, I, and probably a good many  silent others, are inclined to agree with you. Anyone, with an ounce of perception at all, can see the writing in the wall. Can you say bankrupt, hated almost worldwide, an inclination to tell the world what to do and how to do it, losing jobs by the thousands to China, India, Korea, and just about everyone else, foreign aid in the billions while we have a dire need for the money at home, politicians who look after themselves much more that looking out for the rest of us, yada, yada, yada.  Need I say more?





 

4
Comment #13 by Anonymous posted on
Anonymous
#11 and #12 interesting posts.  And I have to agree.

The republic vs. democracy thing is thought provoking.  This nation's founders were certainly head and shoulders above, and smarter than Ben Bernanke or any other of today's leaders, including the POTUS.  They also had a lot more integrity.

Is it any wonder Bernanke's popularity is in the "turlet".  He's been stealing saver's money now for several years.  Bernanke is cloaked in the robe of a highly placed leader, but he is no more than a common thief!!

4
Comment #14 by no stock 4 me (anonymous) posted on
no stock 4 me
All I can say to the CD investors looking for security of Principal is just keep calm, and as always stated, just go with the best deal you can find that makes you comfortable for now. I've been doing this for a while and remember times like these a couple times in my life. I still remember rates up as high as 15% on CD's in the 70's, when of course I was younger and didn't have any money to stick into one. I also remember them going down pretty much as low as they are now for about a year or so. So if you have a retirement and have saved enough by now, all you can do is cut out the BS and live a bit lower to hold on to your money until rates go back to where your comfortable, for me thats around 4% for long term money at my age. I stay well within my living expenses, I do not have a cell phone, IPad or anyting else I, no LCD TV (yet) and use dialup ISP service, I also have no other bills at this time as my house and cars are paid, my biggest expense now is tax's and insurance's.  I always have to go with the standard deduction on tax's as I have never had enough to itemize, so anything tax defered is out. Hell I never even had a IRA.

4
Comment #15 by Anonymous posted on
Anonymous
The Bernanke FED continues to intervene and devalue the dollar.  The Banking cartel FED continues to rob senior citizens and prudent non risk taking savers.  The FED continues to prop up the big banks who speculated on real estate and lost.  We the prudent non risk taking taxpayer are the ones baling them out with zero interest rate policies.  What a dirty scam.   

6