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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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Fed Postpones the Start of Tapering


Fed Postpones the Start of Tapering

The Fed surprised economists today by delaying the start of tapering of its bond buying program (Quantitative Easing). Most economists were predicting tapering of $10 to $15 billion. This is essentially more of the same for savers. We’ll have to continue to wait for just the early start of a long tightening process that will eventually lead to higher deposit rates. Here’s an excerpt from today’s FOMC statement:

Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.

In the last few months, the markets have pushed up the Treasury yields partly due to the expectation that tapering was likely going to begin in September. Some banks and credit unions responded by raising long-term CD rates. Due to the delay in tapering, we may see a fall in Treasury yields and an end to higher long-term CD rates.

The rest of the FOMC statement was very similar to the July statement. The forward guidance of short-term interest rates remains the same:

Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.

And just like previous meetings, there was just one vote against the action.

Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

The Fed also updated its economic projections. One important change was the downward revisions. As noted by the Calculated Risk Blog, this was likely an important reason why the Fed to delay tapering:

With the downgrade to GDP and inflation (for 2014), it makes sense that the Fed decided to wait for more data.

Another worrisome change in the projections is the push out of higher target federal funds rate. The average target federal funds rate expected for the end of 2016 is around 2%.

Chairman Bernanke’s press conference was uneventful. One reporter noted how the Fed’s projections have been consistently overly optimistic. Chairman Bernanke agreed, and if that trend continues, the start of tapering may be a long way off.

Future FOMC Meetings

The next two FOMC meetings are scheduled for October 29-30 and December 17-18. The December meeting will include the summary of economic projections and a press conference by Chairman Bernanke.

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me1004   |     |   Comment #1
Can you spell B-U-B-B-L-E? And isn't that exactly what they were supposed to be saving us from?! I see bubbles developeing all over everywhere --and they see nothing going on. Gee, if the economy is so poor, then why is the stock market so high? And the Fed sees no problem keeping interest rates at zero.

Even housing is going strong. Gee, I'm in California, and here housing prices never dropped as much but have risen far more than other places, despite having the highest unemployment rate in the country. Housing prices here are approaching the peak of the bubble years -- and the Fed sees no problemkeeping interest rates low. 

They're supposed to be looking ahead at what the situation will be at least six months from now, and a year from now -- not whether it is already like that now. It takes plenty of time for anything they do to work its way into the economy and make any impact at all. By waiting until things already are going unstoppably, as they seem to be expressing is what they want to see, they are setting us up for high inflation.

Not that they give a **** what I have to say about it.
Anonymous   |     |   Comment #2
Translation: Hey seniors and savers, buy stocks, mutual funds, ETFs, annuities and other brokered risk assets so your hard-earned money continues to line the pockets of the same cast of characters that got the economy in trouble to begin with. Yay!
Anonymous   |     |   Comment #3
Let the party continue while the monkeys run the zoo.
Anonymous   |     |   Comment #4
maybe a good time to lock in the 2% 5 year CDs before they go back down?
Anonymous   |     |   Comment #5

maybe a good time to lock in the 3.25% 10 year CDs before they go back down?
Shorebreak   |     |   Comment #7
Ben Bernanke has no idea what to do next so he, and the rest of the FOMC, are going to do nothing until his successor takes over. Even then, I don't anticipate any significant "tapering", if any. The federal government can't afford an upward tick in rates.

“I feel sorry for people that have clung to fixed-dollar investments,”
- Warren Buffett told investors at Berkshire Hathaway’s annual meeting in Nebraska.
lou   |     |   Comment #8
Okay, I am now extremely frustrated. What we learned today and what many of us already knew, is that the Fed cannot exit from these ridiculous bond buying programs without causing a major disruption to the markets and the economy. There is no exit strategy, despite all the lies they have fed to us. Me1004 is right, we are seeing the creation of new dangerous bubbles in the real estate, stocks, bonds and govt debt. I hope stock investors enjoy it while you can, because one day it is going to come crashing down. Unlike 2008, the Fed will not be able to rescue us this time.

One other thing: this Administration has been an unmitigated disaster. We have the dog chasing his tail without any success. The Fed keeps trying to keep the economy going and the Administration keeps adopting policies which in turn slow the growth of the economy and the labor markets. I can't believe the American people voted for these clowns. Unless we are extremely fortunate, we could be looking at the unraveling of the economy. The only question is when, not if.
Anonymous   |     |   Comment #9
5 years of 0% interest rates on savings accounts with no end in sight. A good time to recognize the risk of savings accounts. 

Better to have a balanced portfolio.
lou   |     |   Comment #10
Who has their money in 0% savings accounts?
Anonymous   |     |   Comment #11
Bernanke has created a mess out of our economy.  He's not doing anything because he doesn't know what to do.  That's the reason he wants out of his position next January.  He is only creating more income for the top 1% and to hell with everyone else.  BTW, I read he bought two $500,000 anunities just before he implemented the ZIRP.
Anonymous   |     |   Comment #12
I do not have mine in 0% savings but if you are looking for one here is a good deal from Bank of America because it is offering a little more than 0%.

Bank of America 0.01%† - - $1.00 Regular Savings
Anonymous   |     |   Comment #13
Bernanke is driving the boat steadily down the river but he is fixing to bail out just before the boat goes down the waterfall.
Anonymous   |     |   Comment #14
Much better to have a portfolio of 20% stocks and 80% cash. Just take a little bit of volatility to cut back on the risk of cash. Much safer than 100% cash.

But yeah, bad times for savers! It is a crisis that just goes on and on for savers.
Shorebreak   |     |   Comment #15
The FOMC’s forecasts offered the first glimpse of where policy makers expect the central bank’s official benchmark rate to be at the end of 2016. And that rate is near just 2%. The Fed is currently holding official rates near zero. The forecast “tells us that when they get around to raising rates, it’s going to be a slow, long process,” said Kathy Jones, fixed-income strategist at Charles Schwab & Co.

The FOMC’s projected rate is slightly more dovish than what the futures market had priced in ahead of the Fed announcement, noted Paul Ashworth, chief U.S. economist at Capital Economics. Fed funds futures had previously pegged the rate at 1.15% at the end of 2015 and 2% by August 2016, he said, noting that the contracts don’t yet go to December 2016.

Bernanke himself noted that the 2% rate is “well below the longer run normal value for the federal funds rate of 4% or so.”
Hoody   |     |   Comment #16
Anonymous   |     |   Comment #17
To #9 I purchased 4 year CD's that are just maturing paying 4%. Not sure what bank you deal with but ours were paying much more than 0%. In fact I still have CD's paying 6.25% and some that won't mature until 2015 paying 4.88%. You should follow Ken's site. 
Anonymous   |     |   Comment #18
Just look at Japan, 22 years of 0-1% rates and counting while they print money too. That is our future, so relax and do not expect anything in return.
Anonymous   |     |   Comment #19
To #17 - Good story and congrats on your past expertise in getting those fantastic rates, but the question at hand is what can you, or #9, get NOW....not several years ago, but NOW.
Anonymous   |     |   Comment #20
I SURRENDER, BERNANKE AND GREENSPAN WON!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Yellen will even be worse.
Wanderer   |     |   Comment #21
This may be a surprise to economists, but it is no surprise to me. You can cry all you want about what the Fed is doing, but crying won't help you. Seniors and persons on a fixed income are having their assets stolen from them and, essentially, handed over to the likes of Goldman Sachs, Morgan Stanley, Merrill Lynch division of Bank of America, JP Morgan Chase, Barclays, et. al.  You will keep the money, but they are stealing the value of it from you. To encourage politicians to work with them, of course, they insure that our overspending, bankrupt, government will always take its share also.

Consider the huge losses now incurred by all the muppets who believed what the casino bankers and the Fed were telling them about tapering. The vast majority of large institutions and individual investors were going short stocks and gold, over the last few days, in the expectation of the slowing down of the counterfeit money supply. You think that was just happenstance?  It was a well-planned effort by the past and future employees and "consultants" of the casino banks, who are now running the Fed, to loot money from those who do not have an inside track to the real information.

The only answer is to take concrete steps to protect yourself against being fleeced. Keep your money away from the trading banks, and make your deposits into community banks and credit unions. Don't keep a large percentage of your assets in cash. The stock market is going to crash and burn, even if the Fed keeps the level of printing steady because of the law of diminishing returns, so that is not the place to put your money until after the crash happens. Bonds pay virtually no interest, even now. The only place to put money is the same place the banksters are putting theirs... precious metals. Keep in mind that Goldman Sachs, after dissing gold, and spearheading a paper futures market organized crash in prices, used this successful government-subsidized operation to increase its position in gold by 6 times. JP Morgan, which was once the biggest gold short on the paper COMEX market, with an estimated $50 billion short on gold, is now $90 billion long on paper gold.

Why are the casino bankers buying gold while getting the Fed and Bank of England to help them suppress the price through control over the futures markets? Simple. They know that the only way out of declaring an overt debt default on virtually all debt obligations, including bank deposits, is for bankrupt western governments, and this highly overleveraged financial system to default covertly. That means you keep your money, but its value is taken from you.

The Fed and Bank of England are both dedicated to creating enough inflation to make that happen, no matter what the effect on people who keep buying CDs and bonds. So, don't do it. Keep a modest amount of cash to pay for 6 months expenses. The rest of your assets should be invested in tangible goods, including, but not limited to, a serious allocation to gold, silver, platinum, etc. Those metals are the only savings accounts that will survive the heavy inflation that the central planners are going to induce.
OldGuy   |     |   Comment #22
The Fed announces that "emergency" moinetary policy will continue into its sixth year.  On the same day, stock market indices hit new highs.  Is there something wrong with this picture?  If the Fed can't see this bubble, what bubble could it ever see? 
Shorebreak   |     |   Comment #23
Re: OldGuy @ #22, Thursday, September 19, 2013 - 10:56 AM

"If the Fed can't see this bubble, what bubble could it ever see?"

This "bubble" is intentional my friend. The greatest transfer of wealth in history, engineered by Ben Bernanke and Wall Street, all going to the top 10 percent. The top ten percent have 81% to 94% of stocks, bonds, trust funds, and business equity, and almost 80% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.
OldGuy   |     |   Comment #24
Shorebreak: I agree with you about Wall Street.  As for Bernanke, he's simply the perfect fool, letting himself be used by financial interests.  Yesterday, he basically said "I painted myself into a corner.  Now what do I do?"  Wall Street's answer: "Keep on painting!"
Anonymous   |     |   Comment #25
These guys are even more clueless than I thought. Apparently they don't even consider the savers! 
Anonymous   |     |   Comment #26
Well its happened. I've usually been less negative and pessimistic than the posts on this blog, but yesterday at 2:30 pm I joined the ranks of the pessimists. Sorry mom you taught me to always be an optimist, but enoughs enough.
Anonymous   |     |   Comment #27
On CNBC Bernanke was referred to as the 'Reverse Robin Hood".
Anonymous   |     |   Comment #28
Nice post #22 and probably the only one commenting on this that knows what is going on!
Anonymous   |     |   Comment #29
My bad, I was referring to post #23
Anonymous   |     |   Comment #30
Lucy pulled the football . . . again

Q.E. to infinity says the Wizard behind the curtain.
Anonymous   |     |   Comment #31
If the rates go up in future it will be a maximum of 1-3%, that's it, otherwise, the US government will go for broke.
Anonymous   |     |   Comment #32
#31: not will - is broke
QED   |     |   Comment #33
Acquisition of money without effort or consequence (e.g., by printing it or by declaring "QE") is a pretty heady experience.  It's not like a drug.  It actually is a drug.  More precisely, such an event causes release of "happy juice" into the bloodstream, an effect akin to ****.

Do this nationwide, as Bernanke has done, and you have our entire population (for all practical purposes) on dope.  So is this a bad thing?  Well, not for millions experiencing their high.  The rub comes when it's time to get off.  Withdrawal is a bear.  This will not end well, it will not end in a predictable manner, and the longer we remain on the drug the more catastrophic will be the inevitable collapse.

BTW and finally, anyone who believes the US$17T will ever be repaid is either asleep and dreaming, or is on crack or the equivalent.  The USA is not broke, per se.  The USA is, instead, in an extraordinarily deep fiscal hole.  It's not the same thing!!
Shorebreak   |     |   Comment #34
Kansas City Fed President Esther George, the lone dissenter on Wednesday, said she had been "disappointed" by the decision not to begin normalizing policy after an unprecedented period of ultra-easy U.S. money that has already lasted five years.

"The actions at this meeting, and the expectations that have been set relative to how marketswere thinking about this, created confusion, created a disconnect," said George. She has dissented at every Fed meeting this year out of concern its policies could foster future asset bubbles and inflation.

Anonymous   |     |   Comment #35
To #33:


Do you realize that debt was just as high in 1950 as now (as a % of GDP)? And that all that debt was paid off just fine.

And do you know that the 1950's was one of the greatest periods EVER for the stock market and middle class?
QED   |     |   Comment #37

FYI I was alive in 1950 and quite aware of events then in real time.  Any comparison of Americans back then and what we have today is a comparison of apples and oranges.  Indeed, only a complete fool would even suggest such a thing.  American people in 1950 considered repayment of debt a matter of honor and national pride, something for which they were willing to sacrifice.  If you believe Americans today share that same sense of responsibility, you are delusional.  Our US$17T debt will not be repaid because Americans today will never accept the personal sacrifice that repayment would demand of them.  Instead, the pain will be postponed until postponement is no longer an option.  After that will follow the inevitable collapse.

Anonymous   |     |   Comment #38
#37 - Great post....you described it exactly like it was then, and how it is now. Thanks for the memories. And, as for me, I still prefer the 'then' part, even though it seems sometimes as though the freeloaders are winning the battle.
paoli2   |     |   Comment #39
#37 & #38:  I think you left out an important part of the equasion about the people in 1950 and now.  You seem to forget that the "freeloaders" as you call them are the "children" of those great people in 1950 who lived such debt free lives.  I lived in the 1950s also and was raised NOT to be a freeloader but my government did not seem to be a freeloader then.  It was up to us to train our kids how to live as much as possible without debt.  However, how could they not "live for today" when the financial mismanagement and examples of their government was teaching them they might just not have a "tomorrow".  They have to watch their own government destroy their jobs, blow their hard-earned taxdollars and then use what they thought was to be Social Security for their futures for "other" payments etc. etc.  They also were preached these past years for a "socialism" mentality.  WE did not have to live their lives so don't try to compare them to our lives or what we were able to have in the 1950's.  It is unfair and unjust to blame THIS generation for mistakes they had no part of. 

When my mom told me to be sure to "save" my money and stay out of debt, "I" had plenty of banks and homesteads to get really high CD rates.  MY savings were able to grow rapidly so it was easy to stay out of debt.  Sadly, I can't even recommend where someone even myself can get even 3% for a CD unless they want to go out into eternity.    "Follow by example" was always a favorite motto of mine.  Today there is no example I can give my DD to follow except to just try to survive.
Anonymous   |     |   Comment #36
To #19. Actually we have been gifting to the children for 4 years before my husband passed and  I now I have been gifting. I live on my SS only. I find that so far it is all I need. I have IRA's that I can use as I need them and also have the RMD's and I also continue to convert some to a Roth each year.