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Fed Statement: Low Rates to Continue, Fed Prepared to Ease Further


Fed Statement: Low Rates to Continue, Fed Prepared to Ease Further

The Fed didn't make any policy changes in today's FOMC meeting. It continues to say the same thing about the target for the federal funds rate: "exceptionally low levels for the federal funds rate for an extended period". The Fed also stated that it will "maintain its existing policy of reinvesting principal payments from its securities holdings."

There are signs that the Fed is laying the groundwork for a policy change that's in the wrong direction from what we had hoped. That policy change is additional monetary easing. This Calculated Risk Blog post has a good description of how the Fed is paving the way for further stimulus which will likely take the form of purchasing of US government securities. That will put downward pressure on long-term interest rates.

For the 6th time this year, Thomas Hoenig again voted against the rate policy. According to the FOMC statement:

he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and will lead to future imbalances that undermine stable long-run growth.

The lone dissent isn't having much effect.

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 you 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 next June is shown to be 17.9%. That's way down from 26.9% on Saturday.

The last two FOMC meetings for 2010 are scheduled for November 2-3 and December 14.

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Anonymous   |     |   Comment #1
it's NOT working !!!!  
Anonymous   |     |   Comment #2
Anonymous   |     |   Comment #3
The FED is in a massive buying of treasury's since it sees the economy in dire straights.  I believe the FED is making big mistakes by keeping interest rates at 0 this long.  They are killing retiree fixed income people who see the stock market now mostly a manipulated FED market.  I expect the market it to tank right after the mid term election.   Obama can only hold it up so long.  Remember last major election when Obama won?  The S&P crashed down 10% in only 2 days.  
R J Fox
R J Fox   |     |   Comment #4
Is there not a silver lining in the cloud of quantitative easing--at least in the long run?  I don't understand much of this gobbledygook!  I do know these historically low rates of return are breaking my early retired back!  However, it is my understanding, from listening to CNBC, that QE 2 would mean the Fed literally prints more money to buy the country's debt.  In the short term, that will drive down treasury yields even lower.  But, over the longer term, whenever money is "being printed" it will inevitably lead to a higher rate of inflation which will ultimately precipitate increases in interest rates.  Did I understand correctly?  If so, I guess the problem is, how long is longer term and with virtually no fixed income, will I have anything left by then?
Anonymous   |     |   Comment #5
the problem is that the interest rate is kept artificially low, not because there is no inflation. the inflation is not high now, but not at 0. Also, the way CPI is calculated is that food and gas are not counted, which is what we have to spend every day.
Anonymous   |     |   Comment #6
CPI is a joke. Almost every fixed expense I have has risen during this recession, with health insurance premiums taking the cake (43% increase this year alone).
Anonymous   |     |   Comment #7
Based on some of the comments here, I'm convinced that people are clueless as to what the job of the Federal Reserve is.

The Fed has a dual mandate to control inflation and maintain "full" employment.  Unfortunately, the tools that we've given them are control of some interest rates and the money supply.

If folks have been living in a cave, they may not have noticed the unemployment problem we face.  Since they have basically driven rates to zero, the Fed must increase the money supply to try to stimulate employment. 

This has nothing to do with personal savings or people's retirement.  It has to do with companies not spending their money on hiring.
Anonymous   |     |   Comment #8
No people are not clueless.  They realize the govt. and most non-retiree people have been on a wreckless spending spree for years.  Wages are not going up to support that spending spree anymore.  The debt ceiling has been reached.  Debt must be repaid or defaulted.  Many have defaulted on mortgage and credit card loans and this continues.  The FED and govt. is trying to keep spending going primarily for political reasons and not for the good of the country.  You can lead a horse to water but you can't make him drink.   The consumer is done spending for a good while and most consumers and businesses are in a deleverageing mode.  The FED is only making matters worse since it takes savings to have a good economy. 
Anonymous   |     |   Comment #9
Based on your comments, #7, I take it you are rather "well off" compared to the majority of us living on a fixed income.  Good for you.  But you shouldn't try to put the rest of us down by saying we are clueless.  The fact of the matter is, we can see through all the BS the Fed is trying to feed us.  Pehaps it it YOU that doesn't have a clue.
Anonymous   |     |   Comment #11
"The Fed has a dual mandate to control inflation and maintain "full" employment."  Of course, cause having a job is now a right.   Man, where have we gone.
no stocks
no stocks   |     |   Comment #12
Uncle Ben wants inflation but keeps interest rates at 0 keeping banks from paying any kind of interest to savers or making it able for retirees to supplement their lousy “entitlement” SS.

The CBO workin with uncle Ben, keeps playin the figures to keep the Inflation figures at 0 to keep from payin any lousy COLA to keep up with the ever increasing costs for everything they don’t count in their figures. Again keeping retirees from being able to keep up with the increased costs of, for what, oh yeah everything they “don’t count”
Anonymous   |     |   Comment #13
The Fed is trying with all it's might to cause inflation, just as it has in the past 80 years.  The dollar today continues to plummet and everyone thinks they are making money in an up stock market.  The dollar has lost over 50% of it's value in just the last 20 years.  What a joke.  Crude will go to $100 soon as the dollar plummets if the FED continues this crap.  Basically, the savers of this country are bailing out the wreckless spenders.  Come election, I say if your in your out.
Anonymous   |     |   Comment #15
If you believe that the Fed is not intentionally exploiting savers to rescue debtors, you have to at least acknowledge that the Fed is well aware that its policy is decimating savers and has decided either (1) it does not care or (2) this is an acceptable trade-off for the supposed benefit.

I don't have any extensive grasp of economic policy. But from what I can see, lending the banks money at bargain basement rates is not helping because they are not in turn increasing lending to businesses, which is critical for getting people back to work and getting them spending again. Why not bypass the banks and give the money directly to businesses and the people though tax breaks? Just asking ...
Anonymous   |     |   Comment #16
Why was post 10 removed?

Wasn't anything derogatory in it toward any one or any thing. And was on topic.
Anonymous   |     |   Comment #17
#16, it was removed because ignorance *is* bliss.
Anonymous   |     |   Comment #18

#16 and 17--what was #10 about to which you are refering?????(-and who is to say what is "ignorant" anyway? )