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No Policy Changes at Fed Meeting - Rate Hike in 2015?

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The fourth scheduled FOMC meeting of the year ended today, and as expected there were no surprises in the FOMC statement. It looks very similar to the April 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.

The only change in the FOMC statement was some noted economic improvements:

economic activity has rebounded in recent months

...

Labor market indicators generally showed further improvement

...

business fixed investment resumed its advance

In addition to the statement, the FOMC published a summary of economic projections. The sooner the economy improves, the sooner interest rates will rise. So we want to see revisions in the projections showing this improvement. This was seen in the unemployment rate projections which were revised down and in the inflation projections which were revised up. However, the GDP projections for 2014 were revised down significantly.

The projections also include the date of the first rate hike. In March, there were 13 members expecting a rate increase in 2015 and two members expecting a rate increase in 2016. In the latest projections, 12 members are expecting a rate increase in 2015 and three members are expecting a rate increase in 2016. It’s only a slight change, but it’s in the wrong direction for savers.

Chairwoman Janet Yellen gave a press conference this afternoon, and she again stressed that monetary policy will be driven by changes in the unemployment rate and in inflation. The sooner these move to their target levels, the sooner the Fed will hike interest rates. Chairwoman Yellen also stressed that there is "no mechanical formula" for when it will hike rates. So the Fed will be able to delay rate hikes if most members feel it’s best for the economy. Unfortunately, most of the FOMC members are inflation doves and they will likely push to delay rate hikes. In summary, I think there’s a decent chance we’ll see a rate hike in the second half of 2015. However, as we have seen over the last few years, it won’t take much to push this out into 2016.

Future FOMC Meetings

The next two FOMC meetings are scheduled for July 29-30 and September 16-17. The September meeting will include the summary of economic projections and a press conference by Chairwoman Yellen.



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Comments
Comment #1 by Anonymous posted on
Anonymous
Did anyone really expect anything different?  I certainly did not!

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Comment #2 by Anonymous posted on
Anonymous
This is more bad news.  Inflation is really beginning to take off, and these idiots will wait until its too late to raise interest rates.

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Comment #3 by paoli2 posted on
paoli2
Well I am sure glad I wasn't depending on them to give us the answer we wanted.  I may not have gotten the rates I wanted this past month but I made sure I got what "I" need for the next 5 years.  Making a decision depending on the Fed was not a part of my plans.  Sorry for anyone who was waiting for a better decision.

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Comment #4 by Anonymous posted on
Anonymous
You have no idea what will happen during the next 5 years

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Comment #7 by paoli2 posted on
paoli2
No.  And the Fed does??  Maybe I am psychic but I sure do better with "my" choices then waiting on the FED to make things better.   It's my life and I sure know more about what I think we will need than anyone else.
"Prepare for the Worse and Hope for the Best".  That's my motto for life and I think should be for others if they expect to survive financially.

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Comment #5 by Anonymous posted on
Anonymous
Average hourly earnings for private sector American workers rose about 49 cents an hour over the last year, to $24.38 in May. But that wasn’t enough to cover inflation over the year, so in real or inflation-adjusted terms, hourly worker pay fell 0.1 percent over the last 12 months. Weekly pay shows the same story, also falling 0.1 percent in the year ended in May.

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Comment #6 by rick (anonymous) posted on
rick
Probably more likely that rates go negative than they'll ever go above 0 again, Fed meetings will be about whether to make the rate more or less negative.

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Comment #8 by Anonymous posted on
Anonymous
The Fed of magical thinking: why is Janet Yellen ignoring the rest of us?

A two-day diagnosis of the American economy forgot about the very real risk of skyrocketing inflation. Does this country's central bank really need to pretend everything is just fine?

 Americans are experiencing one kind of economy – high unemployment, expensive housing, rocketing food prices and costly medical care – but the US Federal Reserve is seeing another kind of economy: the one in which you shouldn’t believe your own eyes.  It all comes down to inflation: the measure of rising prices that we all experience in our daily lives. And inflation is rising – fast, much faster than the Fed anticipates.

http://www.theguardian.com/commentisfree/2014/jun/18/fed-janet-yellen-economy-inflation  

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Comment #9 by Anonymous posted on
Anonymous
Exactly.  Inflation has taken off.  These fools will not realize the tremendous danger of the increase in inflation and will not raise rates until it is too late.  We are staring the 1970s right in the eyes again!!

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Comment #10 by Anonymous posted on
Anonymous
As a result of QE, the financial industry was forced to find a new asset class that rewarded investors with a better than zero percent yield.  This asset class was commodities.  Through the promotion of alternative investments like commodities, hedge funds were able to earn fees based on their services  as they invested clients funds in various commodities at the same time as commodity prices rose.  A study by Gueorgul Kolev concluded that a permanent one percent increase in the United States monetary base resulted in a one percent increase in the price of commodities.  As we all know, commodity price inflation can be counterproductive to long-term economic growth.

http://viableopposition.blogspot.ca/2014/06/the-problems-with-quantitative-easing.html

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Comment #11 by Anonymous posted on
Anonymous
Betcha somebody's making a lot of money out of this mess, and it sure ain't savers.

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Comment #12 by Anonymous posted on
Anonymous
Even if they go up in a year or two from today, they will be small and not noticable in the saving world. The banks are awash in money and they own 50% of the treasury notes and will never share it with the savers.

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Comment #13 by Anonymous posted on
Anonymous
If the Fed doesn't raise interest rates substantially, very soon, inflation will ruin the economy.  Its already stared and it will get much worse, very fast.

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Comment #20 by Anonymous posted on
Anonymous
The inflation is what the FED says, not what the real inflation is. That has been going on since Obama took office in 2008-09 and if the democrats continue to hold the senate, there will be no inflation forever, because of the entitlements and the welfare programs and the illegals that are being brought in by Obama administration.

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Comment #14 by Anonymous posted on
Anonymous
The savers who did not switch from insured CDs to more risky investments, continue to pay the price of the Feds bailout of everyone else.  The very least they can recommend to Congress is some form of tax credit for holders of insured CDs retroactive to 2008.  It seems to me a 3% credit per annum for 5 years would be the fair number, since that has been the average affect of rate manipulation on CD rates since 2008.

3
Comment #15 by Anonymous posted on
Anonymous
CD holders have savings. Do you really think the government is worried about people with money in the bank?

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Comment #18 by Anonymous posted on
Anonymous
Excellent idea #14. I shot an email to my congressional representative recommending such a tax credit. I can't wait for the response.

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Comment #21 by Anonymous posted on
Anonymous
And where the money will come for such stupid fantasy, I guess you and I and again we will be taxed more to pay for a foolish idea. The country is broke, we borrow money from China to pay the current shortfalls for your SS and food stamps and welfare junkies, stop thinking like a democrat, there is no money left for anything anymore and the ACA will be the last strew that will break this nation in pieces.

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Comment #29 by Anonymous posted on
Anonymous
That will never happen.  Why doesn't the federal government and IRS do what it did do years ago.  To encourage savings, interest earned was tax free up to a certain maximum amount.  I forget just what the maximum was, but I do know they allowed It for a couple of years.  It was a very good incentive to save for the future and retirement.

3
Comment #16 by QED posted on
QED
It's important to remember the Fed (overall) wants higher inflation.  The Fed believes inflation is a really good thing, because they think it stimulates economic activity.  People, in the Fed's view, buy stuff today when they have reason to believe the price tomorrow will be higher.  The Fed is in the "bubble creation" business, and has been for a great many years.  We no longer live in a free economy.  Today, in the USA, our entire economy is heavily managed by government.

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Comment #19 by Anonymous posted on
Anonymous
You are correct #16.
The drug pusher Federal Reserve continues supplying the cheap heroin of zero interest rate policy (ZIRP) to the equity markets. The Fed is in the business of bubble creation which in turn facilitates boom and bust economic cycles. All this jubilation on Wall Street will end in disaster for those on Main Street as usual.

4
Comment #22 by Anonymous posted on
Anonymous
Its just a matter of time.  It will end in disaster for those on main street and wall street.

2
Comment #30 by Anonymous posted on
Anonymous
The Dumocrates don't care, as long as it happens on the Republican's watch!

2
Comment #23 by Anonymous posted on
Anonymous
When a nation is broke, you want more inflation, hah, have ever heard of COLA for the entitlements and welfare and where the money will come for such pay increases, I guess most of you are democrats, never think for tomorrow, just enjoy the spurt of the moment, idiots.

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Comment #24 by Anonymous posted on
Anonymous
Yup, your Bush tax cuts while in two wars really fixed that didn't it? Talk about "idiots" that took us down the slippery slope of permanent deficits.

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Comment #31 by Anonymous posted on
Anonymous
Both parties are equally guilty!

2
Comment #35 by Anonymous posted on
Anonymous
#31, the democrats are 10 times more guilty than the republicans, stop washing your hands by involving third parties in the mess the democrats created.

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Comment #37 by Anonymous posted on
Anonymous
"stop washing your hands by involving third parties in the mess the democrats created." ?

You must have a very short memory.  the Democrats have just expanded upon what the Republicans started.  Since you brought it up, a third party is what we need to shake up the old establishment.  Both parties are equally guilty!

4
Comment #38 by Anonymous posted on
Anonymous
#37, in order to introduce a third party in the system, you have to ban the democrats and republicans and to resolve their existance, otherwise, the democrats always win because they are used to cheating and double and triple voting and no ID allowed votes.
If you can fix the crooked democrats, it is fine with me.

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Comment #40 by Anonymous posted on
Anonymous
#24. I guess you did not want to pay less taxes, tell us what did you do with the saved taxed money or you spend it and enriched your life style.
Nobody is stopping you to send more money to IRS, you can write a check and send it any time if you think that is better for the economy and let the democrats decide how to spend your tax money and not you.

6
Comment #17 by Anonymous posted on
Anonymous
I sure wished the fed chairman would learn how to speak properly.  Every other sentence  started with "ah".  Did she fail speech class?

8
Comment #25 by Anonymous posted on
Anonymous
Yes, and I think she failed economics class, too.

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Comment #26 by paoli2 posted on
paoli2
Economics can change for a variety of factors and all anyone can do is try to learn from other's mistakes.  I don't think passing or failing any economics class is really what makes her good or bad at this job.  She could have passed with the highest grades but still not have the "wisdom" to make the right decisions when facing her own nation's economic problems.  Let's only hope she does for all our sakes.

3
Comment #32 by Anonymous posted on
Anonymous
She's not lacking "wisdom".  She knows what she has to say and do to keep her job.  Politics as usual.

4
Comment #27 by QED posted on
QED
I am struck by some of the old-fashioned thinking here regarding politics.  In an earlier time, it's true, Democrats were spendthrift while Republicans could be counted upon to resist, to keep spending in check, and to maintain the country on an even economic keel.  That was then, this is now.

Today the Democrats remain spending happy and care not one whit about the fate of grandchildren unborn.  But no longer are Democrats at all alone.  Today's Republicans, or RINOs, are virtually indistinguishable from Democrats when it comes to excessive spending and big government.  Oh, sure, there are a few Conservative Republicans remaining; but not very many and not enough to matter.  Republican leadership is now close to unprincipled.  Spending other people's money has proven for them an irresistible lure.  Printing money bothers them much less than once was the case.  Far too many Republicans we find in government today are equally as eager as Democrats to guide America to financial ruin.

Our grandchildren and great grandchildren will curse us.  But today's adults, especially the pampered and spoiled baby boomers, could not care less what happens when they have shuffled off this mortal coil.  Borrow and print, borrow and print today, they say;  and let our grandchildren and great grandchildren try to pay it all off tomorrow and the day after, once we're gone.  What a despicable legacy!!  

3
Comment #28 by Anonymous posted on
Anonymous
QED,

Too true.  And I'm sure you'll agree that the politicians merely reflect what will win the votes.  I would like to think there was a time when voters would see through the "live (spend) for today" short-term benefits of this type of fiscal behavior (and the 'he who screams and complains loudest wins' nature of all of these discussions).  I'm not sure if that was ever the case (nothing new under the sun), but it certainly seems like we couldn't have been any farther from it than we are today.  Principled fiscal behavior and delayed gratification are certainly unwelcome guests in this political climate.        

3
Comment #34 by Anonymous posted on
Anonymous
"Pampered and spoiled baby boomers", you got be kidding or just plain ignorant.  Most baby boomers I know, including myself made do without the all the luxuries which today's younger generations think are necessities.  We worked long hours and saved for the future without wining.  So  today is our future and many of us are enjoying what we earned through hard work and being frugal along the way.

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Comment #39 by Anonymous posted on
Anonymous
Amen. I paid for my two college degrees, have never carried a credit card balance, paid off two mortgages, paid cash for autos and never once received a dime from mom and dad. Forty two years of non-stop work paid off. We are retired, on vacation and always thinking of how we can help family and friends, many of whom haven't saved a cent! 

4
Comment #33 by Anonymous posted on
Anonymous
I don't have a complete understanding of the truth about the US economy but I do believe I have something of a realistic picture and the picture isn't as easy on the eyes as a 19th century landscape. My view: our economic "ride" these days is like trying to take a trip in a bumper car--it's ****ed hard to navigate and the driving is wild-crazy driving, but the trip isn't a fun trip. Look at the facts: the Fed has lowered its forecast for growth in the U. S. economy for the rest of the year, the employment situation isn't expected to reach a "full" (and that's not an old "full" but a more-sobering-new-normal "full") until I believe around 2018, and, of course, with the monetizing of the country's debt there's been some inflation created. Given those facts, what's the real picture? For many decades our economy has been a fits-and-starts economy that runs as jerkily as a subway train (or that bumper car), lurching from one downtime to the next, or one bubbletime to the next. The Fed has juiced things up for the ride in this current "trip" and simply believes the monetary juice needs to be cut back before the engine in this vehicle is in even worse shape down the road, so the juice lever looks to be decreased a little more than than previously expected. It's not that the rate of inflation is so high but that this economic engine needs an major overhaul--not a simple matter. No political party or economic wizard has had a handle on the right overhaul program or one would have been in the forefront by now. We can hope that something along that line will happen as people get more fed up with the crazy rides.

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