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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: Exceptionally Low Rates To At Least Mid-2013


FOMC Statement: Exceptionally Low Rates To At Least Mid-2013

After 30 months saying "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time", the Fed has changed this line for the worse. Today's statement has changed this to the following:

The Committee currently anticipates 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 at least through mid-2013.

The statement started off with a very depressing economic outlook:

Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed.

On the positive side, there was no mention of more asset purchases or QE3:

The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate.

The inflation hawks finally cast a vote against the majority. Three of the regional Fed presidents voted against the policy action. According to CNBC, this is the first time the Fed had 3 dissenters on monetary policy actions since 1992. So perhaps this mid-2013 promise isn't cast into stone. Nevertheless, there were seven FOMC members who voted for the policy and they didn't seem to be concerned about the display of dissent. Here's the description of the dissent in the statement:

Voting against the action were: Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an extended period.

I'm afraid our economic environment is looking a lot like Japan where rates stayed low for decades. It could be a very long time before we see higher deposit rates.

Future FOMC Meetings

The next two FOMC meetings are scheduled for September 20th and November 1st-2nd.

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Anonymous   |     |   Comment #1
I could NOT DISAGREE with you more.

Did your read the statement?

"The Committee currently anticipates that economic conditions" & "are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."

Those statements clearly ment that it is NOT set in stone that rates will stay low till mid 2013. Also low levals does not mean a small rise from where they are now 0% - 0.25% is not out of the question before then. The talking heads on CNBC agree with me.

This statement is just what the deposit rate investor was looking for. This together with the three desenters signals that the FED is ready to begin raising rates soon rather then latter!
Anonymous   |     |   Comment #3
RE: rasising rates sooner that latter. Yeah and we could die due to starving in our old age in the mean time ... and I do mean MEAN!!!
flat broke
flat broke   |     |   Comment #4
anyone who suggests this is anything other than a total disaster for savers is crazy.

samiam   |     |   Comment #5
What the FED does not understand is that in order for this economy to recover, they need to RAISE rates immediately.  In order to spur the economy, banks need to start LENDING.  Banks are not and will not lend with rates so low.  No sane bank will lend money at 3-4% given the current risk levels. However, if the rates were to rise a few percentage points, bank will gladly start lending.  A 7-8% loan is much more favorable to a lending institution in the current high risk environment.
Paul   |     |   Comment #6
Ok, with this great news...not. Any advice on going 10 yrs out with a CD at 3.25%. Thanks, Pl
Anonymous   |     |   Comment #7
CNBC!!!   If you are receiving and absorbing ANY info from CNBC, you are headed for a tremendous calamaty!
Anonymous   |     |   Comment #8
QE1 failed, QE2 failed, buying toxic assets from the banks failed, lending money at 0% failed, printing money for Obama's stimulus failed, ....failed....failed and so on.

Bernanke should resign and let new person with more experience take over.
Anonymous   |     |   Comment #9
Better lock in those CDs today. 
me1004   |     |   Comment #10
To my mind, it seems quite counter-productive to put a date on it like that even if that is their thinking. That only tells companies and consumers not to go out now and spend and not to expand now because they have lots of time before interest rates will rise so no rush for them to do anything! Thus, rather than getting the spending going that we need to boost the economy, it will actually serve to do the opposite!

Second, seems to me that if the Fed feels it would be "at least" two more years of an economy too weak to raise rates, then it is implicit that the Fed has now given up and decided that we will have a longterm L shaped recovery like the 10 years it took in Japan. If the Fed had any hope it would be a V or W recovery, they would not be projecting a poor economy for so long! And unfortunately, I'm afraid that for someone like the Fed to predict that will go a long way to making it a reality -- nobody will want to invest into that, and the Fed is basically telling them not to!
CapitalClimate   |     |   Comment #11
The bond market clearly saw this as an indication of near-zero rates continuing indefinitely.  Although they bounced back a little, shorter-maturity T-bond rates hit all-time record lows, and the 10-year was close to 2% at the low.
no stock 4 me
no stock 4 me   |     |   Comment #12
well the only option I had today was to go with BB&T, they had a 30 month CD at 1.2% (rate and yield) I took that deal only because it has this deal where you can close it in 12 months without any penalty, so its kinda like a 1 year 1.2% CD, also if rates are still in suck mode, you can leave it alone, and when you decide to close it its your call, only thing is when and if I close it I need to pull all fnds out, as anything left after the initial withdrawal would than be under the 6mo withdrawal penalty. but hy its one way to go.

I'll end up going through this drill again in Oct as a ****ed good 6%'er comes due, already have my cryin towel, smirks. I'm so fkn tired of  this idiot Bernak, that I can't even bother to listen or follow him anymore.
Shorebreak   |     |   Comment #13
Helicopter Ben has all but admitted he is lost in the woods. He keeps reiterating in interviews how this is a new situation and so on and so forth. His whole tenure at the Fed has been one of failed policy and will result in the ruination of savers for a very long time. and I thought Greenspan was an idiot. At least he admitted he was wrong after his bubble inducing damage was done. The last decent head of the Fed was Paul Volker. But his sage advice was jettisoned by Obama at the urging of the co-flubber at the Treasury, Tim Geithner. This fiasco has all the trappings of not coming to a satisfactory conclusion down the road. Announcing to Wall Street that you are going to hold interest rates at near zero for the next two years is just throwing gasoline on an already insatiable appetite for speculation and risk. Watch what these fools on Wall Street do now with commodities, junk bonds, emerging markets, oil and precious metals. Many people will get burned and so will our country as a whole. Bad, bad, bad.
shinoby   |     |   Comment #14
It's true QE3 was not announced today.  It will come later.


The members of the FOMC are (mostly) idiots.
Mary Grace
Mary Grace   |     |   Comment #18
My 86-year old neighbor just went back to work, believe it or not Burger King hired her, 22 hours a week to wipe tables and fill the napkin dispensers, etc.  She used to be a teacher in a private school but of course can't do that any longer.  Never married. She went back to work because she gets very little soc. security, no pension.  She has $425,000 in CD's (I know because I help her with her affairs) but now they throw off very little interest, maybe $1,000/month, taxable.  Not enough for her to live on with medicine, heat for her home, etc.   If she could get 5% again, she could enjoy her retirement and not wipe after teenagers at the Burger King.   This country is very messed up right now.  She can't understand why all her scrimping and saving still wasn't enough.
Anonymous   |     |   Comment #19
Frankly, I took Fed's comment today on low interest rates until about 2013 to mean savers need to buy a lot of Kleenexes for all the tears they are going to shed waiting for the day they will ever see a 3% 5 year CD again!  I think 2013 is going to last many, many years until we magically get some people with financial brains in Washington!  As bad as it will be, I would be grateful to wait it out until 2013 if I really thought the idiot was going to give "savers" a break and get our CD rates higher after that.  I just don't think it will be so.  They want people to spend money but they make sure a large percentage of us, the savers and retirees,  don't make enough interest on our money to spend more.   Our officials seem to have no idea how to protect us or our country from financial ruin! 
Anonymous   |     |   Comment #23
No one is trying to protect savers or retirees.   Government officials know who has the assets and it is their aim, in my opinion, to take as much as they can away from us.   When Clinton was President, he changed the rules for social security taxability, going from taxing no more than 50% of social security to taxing 85% of social security if you had income over a certain amount --- couples I think was $44,000.  If anyone saw Maria B's of cnbc interview with Moynihan of BAC late this afternoon, one of his responses was I believe that BAC (Bank of America)  had plenty of capital --- deposits that he did not have to pay interest on or very little interest and he could use the funds to make profits for the banks!!!   Isn't it just fine and dandy --- take deposits from savers, pay them litttle or no interest and then use the funds to make big bucks for his bank!!!

Bernanke is taking care of the banks --- and the borrowers and spenders who got themselves into trouble --- and using savers' assets to foot the bill --- that is in my opinion, of course!!!!
Shorebreak   |     |   Comment #24
“The Fed is on top of the game,” Michael Holland, chairman and founder of New York-based Holland & Co., said in a telephone interview. His firm oversees more than $4 billion. “For people who are serious about the business and about the economy, I believe that the Fed fulfilled what they wanted to hear. It’s premature to say that they are prepared for an imminent stimulus, but it’s not early to say that they are becoming more likely to do something of significance.”
doubleR   |     |   Comment #25
To Mary Grace:  Based on her advanced age, your nieghbor should consider a single life immediate fixed annuity for at least a portion of her savings.  The downside is that it removes that amount of savings she could leave to a loved one when she dies but at her advanced age if she took half her savings, say $200,000, she could probably get  about $2,600 per month from the annuity.  Or if she was willing to use $300,000 for annuities, she could probably get about $3,900 per month.  That would still leave her a reasonable amount of savings.  But she should probably not put more than $100,000 with any one insurer to spread the risk and stay under the protection provided by most states in case an insurance company where to go belly up.  She deserves to use that money for her own enjoyment rather than leaving it to someone else when she dies since she worked so hard to scrimp and save it.  Otherwise some banker is enjoying the fruits of her savings instead of her.
Anonymous   |     |   Comment #28
You know AARP has a huge pull in Washington--any retired older person and those about to retire and/or over 50 who are members of AARP need to flood the phone lines of AARp, send letters, write emails, and have them lobby for the Feds and Obama to STOP this action--vote in Republicans--you may not agree with everything Republicans want to do BUT one thing they want to dso is STOP what the fed is doing!!! AARP and the elderly have a HUGE amount of pull ansd power in WAshington--use it!!! Come together!!!! Take aCTION---sitting back and doing nothing will do nothing for you-----VOte in the people who will chnage this crazy finanical behavior---your future is in your hands and at the polls----good luck!!!
Anonymous   |     |   Comment #32
#28 - 

In theory, you are spot on . IMHO, however, AARP is essentially worthless as to gaining any meaningful financial advantages for the senior retired investors. AARP is the place to go if you want some car insurance, travel perks or car leasing deals but don't expect them to help us with the rate situation....it just ain't gonna happen. Meanwhile, lets keep those AARP dues rollin' in.   
Mary Grace
Mary Grace   |     |   Comment #29
to doubleR #25:  Thank you for your kind suggestion.  I have printed out your post and will pass that on to my neighbor, Helene.  I'm sure that she will appreciate it and look into it.  Your kindness is appreciated.
doubleR   |     |   Comment #33
Glad to help Mary Grace.  The world needs more people like you helping their neighbors.  Probably a good idea to encourage her meet with a reputable local fee-only CPA so that she gets advice independent from the insurance companies from whom she might purchase an annuity.
Maecl   |     |   Comment #34
RE: AARP,  MY husband and I left AARP after the Healthcare vote and joined American Seniors Association.  AARP is no friend of mine.  My doctor isn't taking new Medicare patients, and who knows what's to come.  Add to that low saving rates and living in CT where our leaders passed the highest tax increase in the history of the state.
Anonymous   |     |   Comment #35
To all who commented on AARP, stay away from those liberal, democratic loud mouths for Obama.

Nothing good ever came from AARP, they support the liberals 100% and conspire to cheat and steal from the retirees and brainwash anyone who reads their articles. They are biased and corrupted and just collect the membership money to pay themselves bonuses every year.
Jo   |     |   Comment #36
My oh my! Insanity at its finest. Doing the same things over and over again, while expecting a different outcome. <eyeroll> Definitely there to help the financiers, investment companies, ad nauseum, but for those of us who are struggling, it's a lose-lose.

I was curious to see what the new fixed rate of the I bond would be in November, but with this news, it just isn't going to happen. Yet I keep hearing that inflation has gone up? Quo Vadis?
melman   |     |   Comment #37
Mary Grace - your post is a bit hard to swallow.  An 86-year-old with $425,000 could obviously draw down her principal and live quite comfortably.  So your story about working at Burger King simply to meet expenses seems totally unbelievable to me.  Does she expect to live to 120?  Come on.
doubleR   |     |   Comment #38
To Melman:  Everyone is allowed there own values and comfort level with money.  We simply do not know all the facts about this 86 year old which is the reason I suggested above that she visit with a reputable CPA.  She may desire to leave money to someone who has been especially kind and helpful to her during her life and therefore not want to spend the principal; thus the immediate annuity suggestion.   She may indeed feel she is going to live much longer than you or I could imagine.  We do not know her health though she is healthy enough to hold a job.  Once you get to be of an advanced age then you may have a different perspective on how much longer you will live and how comfortable you are spending you principal, you life savings, as opposed to the money it can earn. 
melman   |     |   Comment #39
I'm just saying that I'm not sure I believe Mary Grace's post.  How much of this is made up? What aren't we being told?

Let's say that she requires 5% of $425,000 for expenses.  Take that from the principal every year, and re-invest any interest earned.  Using an interest rate of 1%, and increasing the annual withdrawal 3% each year... the money will last 18 YEARS.

She can work if she chooses to, if it lifts her spirits to be out and about.  Nothing wrong with that.  But I'll save my sympathy for those who TRULY need it.
Eric Eddler
Eric Eddler   |     |   Comment #43
@ Mary Grace: An annuity similar to what "doubleR" sounds like a good option for your neighbor. The only thing to consider is if she needs a lot of that money at once. Then she would have to look into cash out annuity options. Either way, things like this are an option. Hope everything works out for you and your neighbor. -Eric