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FOMC Statement: QE3 Ends, “Considerable Time” Remains


FOMC Statement: QE3 Ends, “Considerable Time” Remains

The second to last FOMC meeting of the year just ended, and there were no surprises in the FOMC statement. As expected, the Fed announced the end of its bond buying program (aka QE3). With the end of QE3, the attention will be turned to the federal funds rate. Unfortunately for us savers, the Fed is still saying "considerable time" for when it anticipates the first interest rate hike. Below is the excerpt of the FOMC statement showing the "considerable time" wording:

The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

There was one vote against the action, but it wasn’t from an inflation hawk. The inflation dove, Narayana Kocherlakota, voted against the action because he wanted to see a longer commitment of keeping the federal funds rate near zero. Here’s an excerpt from the statement describing the reasoning behind Kocherlakota vote:

Voting against the action was Narayana Kocherlakota, who believed that, in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2 percent and should continue the asset purchase program at its current level.

If the inflation outlook remains sluggish over the next few several months, other inflation doves at the Fed may join Kocherlakota, and that could mean no rate hike in 2015.

Future FOMC Meetings

The next two FOMC meetings are scheduled for December 16-17 and January 27-28. The December meeting will include the summary of economic projections and a press conference by Chairwoman Yellen.

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Anonymous   |     |   Comment #1
For several years now all my senior friends have greatly reduced spending due to less income from low interest rates. I'm no economist but it seems to me the Fed is blind to this obvious factor contributing to sluggish growth.
Anonymous   |     |   Comment #2
I concur that many seniors on fixed incomes that depend on insured deposit accounts to augment their incomes are spending less. I don't know if that has any impact on overall economic growth but retail stores, restaurants and service providers that cater to a large senior clientele sure as heck don't like it.
Anonymous   |     |   Comment #7
Low interest rates have actually hurt the economy.  Japan is Exhibit "A" to prove this.
Anonymous   |     |   Comment #28
Yes. The real reason that doesn't get talked about because it's economic stuff and not very interesting to media types that are lazy, is that savings in an economy equal investment, which has been shown by data for a long time the be the case. If an economy is to have real growth--growth which takes into account any inflationary effects--it needs to have more investment which produces income and asset growth for people--seniors, non-seniors, employees and retirees. Low-rate stimulants are similar to prescribing a stimulant for a patient to get over a situation--not really good for the long-run because the low rates put off doing what needs to be done for the long run: increasing investment.  
alpha   |     |   Comment #36
Hold on, didn't Japan have relatively high central bank rates until fairly recently? Note that Japanese bond rates have been suppressed before this, but that's more due to investor demand after the crash that led to the lost decade more than anything the central bank did.
Anonymous   |     |   Comment #13
Quit voting for the democrats if you want better rates, they run deficits and print money, nothing good ever comes out of them.
alpha   |     |   Comment #37
As if Republicans don't do the same thing? You know, Bush (both of them), Reagan, etc?
Anonymous   |     |   Comment #3
A decade from when the 0 to 1/4 percent target range for the federal funds rate began the words "considerable time" will still be used.
Anonymous   |     |   Comment #4
The Fed, and Ms.Yellen in particular, believe that it is part of their charter to do social engineering. i.e. picking society's economic winners and losers. Unfortunately, seniors who have the shortest horizon to recover have become the designated losers. Without the senior savers the banks would not be able to fund the young risk takers enterprises. Basically, Ms. Yellen is fulfilling her obligations as a political appointment of POTUS.
Anonymous   |     |   Comment #6
Did anyone really expect anything different coming out of this latest Fed meeting?  Not I.  I have resigned to seeing no significant change in my lifetime. 
Anonymous   |     |   Comment #8
Hikes? Forget about them. They are not coming.
Anonymous   |     |   Comment #9
Even though Ken and others report there were "no surprises", some interpreted today's policy as "more hawkish", and it immediately triggered a sell-off in the stock/bond markets.  Those markets are so sensitive to "words" in a statement, that if/when the Fed actually decides to raise rates, even if it's a measly 10-25 bps, the stock market is going to crash so bad it's gonna make 2008/2009 look like a walk in the park.  The build-up to this volatility is amazing and it's absolutely sickening that our future wealth is being controlled and manipulated by "words" in a Fed statement.  Think about it.  For the past six months the markets have been fixated on two words: "considerable time".  Our investments, ranging from stocks/bonds/CDs is dependent upon language in a frickin' statement!  And so called "experts" can't understand why main street moms and pops keep cash under the mattress or mason jars buried in the back yard.  It's all insanity.
I hate Fort Knox FCU
I hate Fort Knox FCU   |     |   Comment #10
Three main reason why Yellen won't raise rates EVER -
1.  The FED itself now holds over 4 trillion dollars in purchased US bonds, compared to less than 1 trillion dollars before QE started.  So raising rates would shot themselves in their feet by collapsing their own bond investment value.
2.  Raising rates would raise cost US debt financing and drastically increase our annual deficit spending - a vicious circle!
3.  Yellen is liberal and true to her social do-gooding belief of wealth redistribution.  She keeps coming up with more excuses to never raise rates because she doesn't want to raise rates EVER.  She keeps lowering here threshold targets for employment numbers to justify her stance.  She would LOVE a heafty wave of inflation to take from the rich and give to the poor since the poor get full financial support from the welfare programs anyway.
Anonymous   |     |   Comment #12
Bull! The true welfare queens are the corporations getting all manner of federal subsidies costing us taxpayers pain down to the bone! Geez, what planet are you from? Yellen, despite getting an appointment from this POTUS is doing nothing more than carrying on where Bernanke left off. Open your eyes...
Kaight   |     |   Comment #34
Even if you're right, Bernanke was also a skunk.  It's not politics.  BOTH parties are in on the hustle.  And we are the losers.
alpha   |     |   Comment #38
"collapsing their own bond investment value" - technically, that doesn't mean anything if they hold the bonds until maturity, as they're likely to do in order to avoid a collapse in the bond markets. You can't really lose the principal of a bond unless the issuer defaults or you decide to sell it early.
henry   |     |   Comment #20
Hey Number #9:

I will be you $10,000 that the "even if it's a measly 10-25 bps, the stock market is going to crash so bad it's gonna make 2008/2009 look like a walk in the park" WON'T HAPPEN!

You sound pretty convinced. Let's make a $10,000 bet and we will revisit in 2 years. Put it into a contract. You sound pretty convinced.
Anonymous   |     |   Comment #14
The equity market is near an all time high, and last week the 10 year bond rate was below the panic level of 2008. The debt/equity balance, of a free market, no longer exists. It's not coincidence this happens near the midterms. A manipulated market also manipulates the election.
henry   |     |   Comment #21
Lots of people were equally negative on equity markets back in 2011/2012. People were scared of the scary scary Fiscal Cliff. 

All those people need to admit they were wrong and that equities are a great long-term investment. They are probably still a good long-term investment, even at today's all-time highs. What else is better? 10-year treasury 2.3%? No thanks. 0.8% online bank? No thanks. 
Kaight   |     |   Comment #35
Respectfully disagree.  Today there is no such thing as a "good long-term investment".  Given now-existing governmental manipulation of and interference with our economy, America itself is no longer a "good long-term investment"!  Truly free markets work best because they reward winners, while punishing and chastising losers.  We are moving farther and farther away from having a free market.
gregk   |     |   Comment #15
Secondary to the "Fed watch" and coming FOMC meetings in Nov & Dec for me personally is the "PenFed watch" and the outcome of their end of year Board directives for 5 & 7 year CD rates.  What's the handicapping here?  A repeat of last year's holiday gift of 3.04% APY, merely a continuation of their current 2.12%, or something in between?  I'm increasingly believing it's going to be a disappointment.
Anonymous   |     |   Comment #30
From what I read on this blog (And I experienced) last year when Penfed had a CD rate that was much higher than any other institution is that they:

-They were overwhelmed with the response

- Many CD's were closed and reopened at the higher rate. (That;s what I did)

-  I think if they do an end of year special it will be closer to the highest rates available from other institutions.
Anonymous   |     |   Comment #31
Don't count on it. They lowered their rates effective November 1, 2014 for the 1,4,5 and 7-year certificates. They 3-year rate was raised. The 6-month and 2-year rates weren't changed.
Anonymous   |     |   Comment #16
The message from the FED, learn to live bellow your means and be happy I do not destroy your savings with negative rates.
gregk   |     |   Comment #18
You contribute nothing here as far as I'm concerned.  Just endless and mindless adolescent rants that seemingly infect every topic with your conspiratorial accusations.  I don't say "stop", cause "getting it out" here may be preventing you from doing something more consequential, and passing over your stuff quickly is easy enough in any case.  But why not give expression to thoughts a bit more reflective and discriminating now and then?  It would be a pleasure.
Anonymous   |     |   Comment #17
If the Fed abandoned QE and simultaneously raised rates the stock market would implode. See the reaction to no more QE accompanied by a pledge to maintaining low rates? Yep, market goes up. Regardless of what the Fed wants, plans, hopes for or conjures up with their Ouija board, one of the greatest wealth transfers in history has been facilitated by two events: 1) Systemic and unconscionable risks taken with government backed money (MBS's, etc.) and, 2) the eagerness with which the Fed bailed them out. Every transaction has two sides. Savers and everyday folks are simply on the losing side of this one. Janet has the audacity to publicly complain about the very income inequality she facilitated. I often wonder how these people sleep at night. Perhaps a visit to an old folks home, food bank and local charity event are in order.
gregk   |     |   Comment #19
Sigh.  Do you feel better now?
henry   |     |   Comment #22
are you more conservative since 2007? if so, you are a part of the problem.

too much demand for "safe" assets like bank deposits/bonds
Anonymous   |     |   Comment #25
Pelosi has solution for the low interest rates, bring million more illegals, give them welfare, print money, destroy the dollar, create hyper inflation and give better rates to savers, problem solved, however, comes with a condition first:
Anonymous   |     |   Comment #26
Our lawmakers are now some of the biggest law breakers in history.
I Hate Fort Knox FCU
I Hate Fort Knox FCU   |     |   Comment #27
The solution is term limits...2 terms maximum...
the first in office and the second in jail.
gregk   |     |   Comment #32
We keep voting for them.  Fact is, when the corrupt things they do go to our advantage, we don't mind.
Anonymous   |     |   Comment #33
However, I haven't seen anything for years that a politician has done for my advantage, legally or corrupt.  Our political system is BROKE!