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Fed To Hold Down Rates Until Jobless Rate Is Below 6.5%

Wednesday, December 12, 2012 - 12:19 PM
From the New York Times: 
The Federal Reserve said Wednesday that it would maintain its efforts to revive the economy in the new year by continuing its monthly purchases of $85 billion in Treasury bonds and mortgage-backed securities.

The Fed said it would keep buying bonds until the outlook for the labor market improves substantially, reiterating a policy it first announced in September.

Looking even further into the future, the Fed said that it expected to maintain short-term interest rates near zero, even after it stops buying bonds, for as long as the unemployment rate remained above 6.5 percent, provided that medium-term inflation does not exceed 2.5 percent. The November jobless rate was 7.7 percent.

 

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5
pearlbrownpearlbrown1,356 posts since
Nov 2, 2010
Rep Points: 5,955
1. Wednesday, December 12, 2012 - 12:33 PM
3
ShorebreakShorebreak2,367 posts since
Apr 6, 2010
Rep Points: 12,619
2. Wednesday, December 12, 2012 - 12:45 PM
So the choices are:  "Would you prefer being wiped out by massive interest on the national debt or crushed by stratospheric mortgage rates"? 

Yeah, we're doomed. 
2
pearlbrownpearlbrown1,356 posts since
Nov 2, 2010
Rep Points: 5,955
3. Wednesday, December 12, 2012 - 1:16 PM
What amazes me that politicians are getting paid a lot of money to throw us into the pit!  What amazes me even more is that Americans keep voting them back in!  What a sick joke and it's on us!
3
paoli2paoli21,140 posts since
Aug 10, 2011
Rep Points: 5,087
4. Wednesday, December 12, 2012 - 7:04 PM
I respectfully submit not is all doom and gloom. See my comments over on the Blog under the recent topic on the FOMC.

Rates will (eventually) rise, as they must, because of, or more likely despite, the Fed. The Fed does not issue retail CDs. It also does not control the action on the long bond (30 years). Witness the action today, as rates ROSE to 2.9%.

Be patient and obey your ladder.
3
BozoBozo135 posts since
Feb 14, 2011
Rep Points: 917
5. Wednesday, December 12, 2012 - 8:14 PM
Bozo, it may not all be doom and gloom but it certainly is not pretty. 

I have to respectfully disagree with you on one point:  unfortunately it is not always true that rates must rise - sometimes what goes up doesn't come down and vice versa.  And even if that were to be the case, the $64k question is:  "when will they rise"?  The Japanese are still waiting for relief from their "lost decade" and it doesn't look like it's imminent. 

Banks are always making "pricing" errors (as you mention in your blog discussion) as they forecast conditions x years down the road and set their CD rate offerings.  We learn about those through Ken's blog and hope to be able to take advantage of them before the rate is pulled.  Frequent review of the longer-term (6+year) CD rate tables, however, hasn't shown any institutions increasing their 6+year CD rate offerings.  In fact I am noticing some steady erosion in the neighborhood of 10-20 basis points, sometimes as much as 30.   So if the forecasting/pricing errors are right, the banks don't expect things to get better any time soon.  In addition, I am not seeing any who are willing to move too far from the rates set by the rest of the pack.  In other words, no institution is willing to make a bold move.  Of course, that could all change tomorrow. 

Nonetheless, I will continue to stick with my CD ladder (I like your "obey your ladder" LOL) to balance taking advantage of current interest rates, anticipated future interest rates, and maintaining some periodic liquidity as we wait for better times.    Safety does come at a price, but I like sleeping at night. 
3
pearlbrownpearlbrown1,356 posts since
Nov 2, 2010
Rep Points: 5,955
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