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No Policy Changes at Fed Meeting - Long Wait Continues for Savers

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The third scheduled FOMC meeting of the year ended today, and as expected there were no surprises in the FOMC statement. Tapering continues with a reduction of $10 billion in the Fed’s bond buying program (aka Quantitative Easing). That’s a little bit of good news for savers since this program will have to end long before the Fed starts to increase rates. One thing that’s not good news for savers is the Fed’s interest-rate language, what is called forward guidance. There were no changes in the forward guidance from the last meeting, and that gives the Fed a lot of leeway to delay rate hikes.

At the last meeting, the Fed changed its forward guidance by removing the unemployment rate and inflation thresholds to base the timing of the rate hikes. Now the Fed says it will "take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments." As I mentioned after the last meeting, this gives the Fed a lot of leeway to delay rate hikes. The markets didn’t focus on this after the last meeting. Instead it focused on Chairwoman Janet Yellen’s press conference when she suggested that rates could be hiked as soon as six months after the end of QE. Further Yellen speeches revealed that too much focus was put on that rate hike suggestion.

Another bit of good news for savers in today’s FOMC statement is that the Fed acknowledged some improvements in the economy. From the first paragraph in the statement:

growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions.
[...]
Household spending appears to be rising more quickly

Not all of the economic views in the statement were positive. Also from the first paragraph:

The unemployment rate, however, remains elevated.
[...]
Business fixed investment edged down, while the recovery in the housing sector remained slow.

With the latest disappointing news on GDP (U.S. GDP Grew A Glacial 0.1% In The First Quarter 2014), rate hikes are probably still a long way off. I think we’ll be lucky if the first rate hike starts in 2015.

Future FOMC Meetings

The next two FOMC meetings are scheduled for June 17-18 and July 29-30. The June meeting will include the summary of economic projections and a press conference by Chairwoman Yellen.



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Comments
34 Comments.
Comment #1 by Anonymous posted on
Anonymous
I do not expect the rates to up until the national debt stops going up and until there is balanced budget. The democrats are spending money and raising taxes for the last 6 years and because of that the programs enacted will weigh on our standard of living and the interest rates for at least 10 more years.

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Comment #2 by Anonymous posted on
Anonymous
Both major political parties are equally as guilty for the financial mess our country is now in.  And neither party will doe what is necessary to produce a balanced budget. Our career politicians are ALL more concerned with being re-elected.

16
Comment #9 by Anonymous posted on
Anonymous
I do not agree, the democrats spend 3 times more on social and useless programs than republicans do. Just look Obamacare, it will costs trillions of dollars on long run and the mentality of tax and spend is on the democrat's agenda all of the time.

5
Comment #25 by alpha (anonymous) posted on
alpha
Oh? And how much did Bush spend on those wars of his?

2
Comment #3 by QED posted on
QED
The Democrats are hopeless spenders, precisely as you suggest.  Problem is today many Republicans are scarcely better or different.  Oh, sure, a small number of Republicans has this right.  They are derided, made fun of, and spat upon almost daily by both Democrat and Republican big spenders, including notably the current Republican leadership.  Bottom line:  the situation is completely out of control with no solution in sight. 

15
Comment #26 by alpha (anonymous) posted on
alpha
Wrong. You people don't seem to understand that the finances of a government are different from a large organization. Bonds and interest rates are a tool of monetary policy to control inflation and to reduce circulating money, not so much as an actual means of funding governments. Interest rates remain low as inflation remains low as well.

1
Comment #4 by QED posted on
QED
Ken thanks for an excellent and timely Fed report.  It's good they continue to decrease QE, but I was a little surprised given our 0.1% growth rate in the first quarter of 2014.  That rate of growth is a joke, so of course the weather was blamed.  Yeah, right, it was the harsh winter weather.  Also, 50 pigs are currently flying in formation directly over my house . . . and other fantasies.

You can take this to the bank:  Our American economy will remain deeply immersed in the tank so long as Democrats remain in charge of this country.  Don't look for interest rates to rise any time soon. 

17
Comment #27 by alpha (anonymous) posted on
alpha
And who brought us into all of this? Hint: it was a Republican. So your assumption goes out the window.

4
Comment #5 by Anonymous posted on
Anonymous
Any hike in short-term interest rates is way, way off...

"But even if there is no recession, the maturing business cycle suggests the recovery may never shift into higher gear, as millions of un- and underemployed Americans have been waiting for. “I don’t see us ever getting a real recovery,” Stanford economist John Taylor said at the Milken conference. “It looks like we’re giving up on that.”

http://www.depositaccounts.com/forum/thread/16528-mind-recovery-ready-recession.html

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Comment #6 by Anonymous posted on
Anonymous
You just never know.  Unexpected things can happen. 

3
Comment #7 by Anonymous posted on
Anonymous
Like tomorrow when the new IBonds rate is released!

2
Comment #8 by Anonymous posted on
Anonymous
My experience with unexpected things is usually bad and not good.

7
Comment #10 by Anonymous posted on
Anonymous
Unexpected things are usually bad.  But in the case of interest rate hikes, the unexpected may be good. I think we will have our first rate hike before the end of 2015.

3
Comment #11 by Anonymous posted on
Anonymous
Low rates have allowed businesses to increase profits via labor reductions, stock buybacks and other accounting tactics. It is not based on organic growth, something that is absolutely essential to an expanding (i.e. recovering) economy. New jobs are not full time, high-paying careers. Taxpayers back 90% of student loans (> 1 trillion dollars) and 7 million borrowers are in default. First quarter growth of 0.1% is blamed on the weather. The second quarter will tell the tale. If we don't see significant growth (2-3%), we're headed for recession. In that environment owning 7-year 3% PenFed CD's will make you look like a genius. 

9
Comment #12 by gregk posted on
gregk
My own best hope is that in January, 2015 when I have two large CD's maturing, PenFed will again be offering the 3% 5 & 7 year Money Market Certificates.  Will they do it again?

3
Comment #13 by paoli2 posted on
paoli2
That would be great for you #12 but my hopes are on sometime this year when I will be needing higher rates.  Too bad we can't encourage Penfed to just give us a 3% rate for 2014 and 2015! 

3
Comment #14 by Anonymous posted on
Anonymous
We will see a 5 year CD rate of 3% or more at some bank or credit union, not Pen Fed, by the end of the year.

1
Comment #15 by Anonymous posted on
Anonymous
#14  Can we take your post to the bank and depend upon it?  Sure hope so! 

5
Comment #17 by Anonymous posted on
Anonymous
Just watch.  You will see my prediction come true.

1
Comment #19 by Hoody posted on
Hoody
Looks like Navy joined the crowd and did lower their rates somewhat., still just a bit better than PF now So who knows what these banks/CU's are looking at or what might be on the horizon.

3
Comment #20 by Anonymous posted on
Anonymous
Nothing positive, that's for sure!

2
Comment #29 by williamp (anonymous) posted on
williamp
You got it. "REAL" economic growth--adjusting for all the governmentally-manipulated data on unemployment and inflation, hasn't been--and isn't being-- "REALized" and the Fed is simply in line with Washington's window-dressing machinery when it continues to cut back on bond purchases as the purported result of the "improved" economy. The real reason for the cutback in bond purchases is because the Fed understands that the bond purchase program was novel and risky from the beginning, of course had limited promises at most with regard to what it could deliver, and the Fed saw the desirability to wind down the program because continuing that particular game simply wasn't worth the candle. Real economic growth in the country requires some real systemic changes that simply haven't been in the mix so far because the big-money interests that run the country are more content with the present setup than with making bolder systemic changes in the system..

2
Comment #16 by Anonymous posted on
Anonymous
The democrats need cheap money to finance their never ending saga of tax and spend, stop living in fantasy land.

2
Comment #18 by Anonymous posted on
Anonymous
2016 is a presidential election year. Historically, voters make their presidential choice, based only on the economy. If the Fed continues its' artificial stimulation of the economy, 8 years through the end of 2016, the Federal Reserves' policies will elect a democratic president.

3
Comment #21 by Anonymous posted on
Anonymous
At this point, it really doesn't matter.  It is predicted that China's economy will surpass the U.S. economy by the end of this year, quicker than anticipated.  Great Britain had their glory days, then we  had our's, now China's economy is poised to take over world dominance.  It's just how it works.  No country in history remained world leader for ever, it's just that both our political parties hastened our downfall.  Greed and corruption will do it every time!

4
Comment #22 by Anonymous posted on
Anonymous
China has 4X the population of the US. It's economy is structured very differently and it manipulates its currency. A poor American looks like a oil-drenched sheik to a poor Chinese. Google poor Chinese and look at the images. As they say, the US is big and wealthy; China is just big.

2
Comment #23 by Anonymous posted on
Anonymous
And we don't manipulate ours?  Just what do you think the Fed has been doing?  It's not just about interest rates.

Yes, China is big, has an even a bigger population,  and  is on the verge of becoming wealthier than the U.S. when their economy surpasses ours in the not to distant future.  Pay attention to what the economists from all around the world are saying.

2
Comment #24 by Anonymous posted on
Anonymous
Visit Liechtenstein and ask how many people "fear" the growth of China. China has a very long way to go before its population is as "wealthy" as ours...a very long way. By the way, the EU has been ahead of US for a long time...or nearly equal depending on the time frame. Who cares if China's GDP is equal to the US when they have four times the population? China holds about 8% of US debt but, based on sensational news reports, one would think they hold it all. China's not our problem, we are.

4
Comment #28 by Anonymous posted on
Anonymous
When China refuses to lend us money at these ridiculously low rates, you will see interest rates rise.  China may hold " only" 8% of US debt, but everything happens at the margins.  You will see a 3% 5year CD by the end of the year.

3
Comment #31 by Anonymous posted on
Anonymous
We already saw 3% with PenFed and there was no Fed rate hike. When you see 1-year CD's paying 2% at every local bank let us know.
You can get 3.4% 10-year CD's but no one wants the term. The guy who bought a year ago is one year down the road with an FDIC 3.4% rate. After a few more years they'll be holding a 7-year 3.4% CD, then a 5-year 3.4% CD and so on. It's all about risk and reward.

3
Comment #32 by Anonymous posted on
Anonymous
I agree.  I expect to see higher rates by year's end.

2
Comment #33 by James Barnes posted on
James Barnes
The fed will probably start to raise rates vey slowly.

1
Comment #35 by Anonymous posted on
Anonymous
Looks like Japan all over!

1