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Fed Says “It Can Be Patient” On the First Rate Hike

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Fed Says “It Can Be Patient” On the First Rate Hike

The last scheduled FOMC meeting of 2014 ended today. There were expectations that the Fed would be modifying its language on when it plans to make its first rate hike. The language did change a bit in the FOMC statement, but the Fed made it clear that it’s in no hurry to raise rates. The wording "considerable time" was moved around to indicate that the asset purchase program (QE3) did end in October. The Fed added the phrase:

the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.

In a press conference after the release of the statement, Fed Chair Janet Yellen offered some more description of "it can be patient". She said she doesn’t foresee the first rate hike for "at least the next couple of meetings." That will depend on economic conditions. The second FOMC meeting of 2015 will be on March 17-18.

In summary, the Fed remains vague in the timing of the first rate hike. Financial markets are interpreting the new statement language to mean the first rate hike won’t be until next October. Before the statement, the markets had expected the first rate hike in September.

We’ll have to keep waiting for the Fed signal that indicates a rate hike is on the way. With the current language, the Fed can keep us waiting as long as they want.

The best we can hope for is for consistent and strong economic growth. That will eventually force the Fed to hike rates. The Fed released new economic projections after its meeting today, and GDP for 2014 was revised up and the unemployment rate was revised down. That shows economic growth that is exceeding expectations. However, inflation projections were revised down. That gives the Fed more time to hold rates low.

The projections also include FOMC members' expectations for the first rate hike or as it is called in the report, "timing of policy firming." Out of the 17 members, 15 are expecting policy firming to begin in 2015. Two are expecting it to begin in 2016. So I’m still optimistic that we will finally see the first Fed rate hike sometime next year.

For additional overview of the FOMC projections, please refer to this Calculated Risk Blog post.

Future FOMC Meetings

The next two FOMC meetings are scheduled for January 27-28 and March 17-18. The March meeting will include the summary of economic projections and a press conference by Chairwoman Yellen.

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Comments
Anonymous
Anonymous   |     |   Comment #1
If and when the first rate hike comes it will probably be only 25 basis points.
Anonymous
Anonymous   |     |   Comment #2
Comments:

“The Fed is in a corner -- it wants to raise rates in 2015 but Oil / Dollar / Disinflation say NO! NO! NO!!” billionaire investor Bill Gross of Janus Capital Group Inc. wrote on Twitter yesterday.

 Citigroup and Nobel laureate Paul Krugman agree. Citigroup doesn’t see the Fed acting before next December, while Krugman said Dec. 14 it could hold fire for the whole of next year as officials conclude “it’s a pretty weak world economy out there, we don’t see any inflation.”
scottj
scottj   |     |   Comment #3
And after that first hike will probably wont see another hike for a few meetings. I know people don't like to bring politics into this but unless we  see a change in the Presidency in 2016 the future is dim for savers. Many Republicans have been vocal about this zero rate policy being harmful, a Republican President would get rid of Yellen as soon as possible. Could only imagine how bad someone like Elizabeth Warren would be for both savers and investors. Savers are just a very tiny block when it comes to voters so no one is every really going to care about us
Anonymous
Anonymous   |     |   Comment #4
"Many Republicans have been vocal about this zero rate policy being harmful, a Republican President would get rid of Yellen as soon as possible."

Why would that be when Republicans are basically minions of Wall Street who are profiting immensely due to the zero interest rate policy (ZIRP) of the Fed?
Anonymous
Anonymous   |     |   Comment #8
They're all the same. Dont think for a second that a republican would do anything different. I 'm done with them and want a 3rd party of true conservatives......and I will NEVER vote for fat-face rino Jeb Bush......NEVER!!!
Anonymous
Anonymous   |     |   Comment #15
It's a troubling but true fact that today there are prominent Republicans who might as well be Democrats.  Soon our choice will be between Democrats and D-Lights (Democrats "light").  You know, similar to Budweiser and Bud Light, both children of the same mother.  It's a truly sad state of affairs, with zero chance of a good outcome.
Granny Clampet
Granny Clampet (anonymous)   |     |   Comment #5
Shameful way to treat seniors who have saved many years and are now collateral damage.
Anonymous
Anonymous   |     |   Comment #6
Too bad there's very few wise people on the FOMC
Anonymous
Anonymous   |     |   Comment #7
why ken why
Anonymous
Anonymous   |     |   Comment #9
Locked in a 3.25% -10 year CD a few months ago.......And feeling pretty good about it. That's the best we will ever see.
Inforay
Inforay   |     |   Comment #10
Is this CD still available?
Anonymous
Anonymous   |     |   Comment #11
It's now 3.20. CIT Bank 10-year noncallable brokered CD.
anon-non-non
anon-non-non (anonymous)   |     |   Comment #12
There's still the Tobyhanna (soon to be Valor) Credit Union 7-year CD (instead of 10 year term) that's 3.04% and available to all -- AND it's an add-on CD, so you can add to it at any time. However for new customers there's a $100,000 cap (anything over $100,000 pays hardly any interest, but anything UP TO $100,000 will pay 3.04%). And there's a stiff early withdrawl penalty (2 years of interest). But it's still only 7 years instead of 10, and it's an add-on, so you can add on at any time (as long as it's not over $100,000). Details are here on DA, just search for Tobyhanna Credit Union.

that's also available to all. It has a stiff early withdrawl penalty (2 years of interest)
Inforay
Inforay   |     |   Comment #14
My concern with the Tobyhanna CD is that I cannot withdraw the interest only, without penalty, during the term of the CD.  Being close to retirement, I don't know if I will need the interest at some point during the 7-year term.
Anonymous
Anonymous   |     |   Comment #16
That's the reason why I cancelled opening an account with Tobyanna at the last minute. If one needs a steady income flow to live on during retirement this 7-year CD is not the product. It's a nice deal if you don't need the interest for 7 years.
Anonymous
Anonymous   |     |   Comment #20
Interesting option and it looks like it has the "slight" potential to offer an increased rate over the term with an adjustment based on an increase in the prime rate. Wondering why it doesn't show up in cd rate listing under 6+?
Inforay
Inforay   |     |   Comment #13
Thank you very much.  I am not familiar with brokered CDs.  Is this one purchased from a broker, and if so, which one?  Can you sell a brokered CD before the maturity date and is there an early withdrawal penalty as with a regular CD? Can you periodically withdraw interest?  Any information will be most appreciated.
Anonymous
Anonymous   |     |   Comment #24
A Schwab non-callable 10-year $100,000 brokered CD at 3.3%.............
No Fee. $100,000 CD cost $100,000
Sold in increments of $1000 (see specific CD)
FDIC insurance (limits obviously apply)
$1650 interest paid to brokerage account every 6 months...use as you please
Can be sold in the open MARKET through Schwab. If rates go up you will probably lose principal in a sale. If rates fall a sale will probably be above par.
My strategy is to buy small brokered CD's, ladder them and hold for the duration.
All mine have survivorship clauses...inheritors can sell with interest and principal intact before maturity.
Anonymous
Anonymous   |     |   Comment #26
Which bank?  How can a customer confirm that, i.e. no FDIC insurance attaches unless the financial institution is insured
Anonymous
Anonymous   |     |   Comment #18
It's distressing to read the comments here from beleaguered seniors grasping desperately for yield by extending CD maturities out to heretofore unheard-of lengths of time.  In the words of Admiral Ackbar:

"It's a trap!!"

Honest.  Here is the link:

https://www.youtube.com/watch?v=4F4qzPbcFiA

But what alternatives exist?

.
Anonymous
Anonymous   |     |   Comment #19
There is no alternatives in a nations that runs $1,3 trillions a year deficit. Count you blessing that the banks did not introduced (yet) a negative rates on savings like Switzerland did today, 1/2% on all deposit accounts.
Anonymous
Anonymous   |     |   Comment #40
Learn about sight deposits before speaking. Then learn about the exemptions...
"The sight-deposit charge is subject to exemptions that will be set individually for each account holder. For banks subject to minimum reserve requirements, including UBS Group AG and Credit Suisse Group AG (CSGN), that will be 20 times the statutory minimum reserve requirement. Institutions without such obligations will be granted an allowance of 10 million francs ($10.2 million)."

I implore people to read ENTIRE articles and understand what they're reading prior to posting.
Anonymous
Anonymous   |     |   Comment #21
If you republican losers try to nominate a liberal rino like Jeb Bush or Chris Christie.......I and millions of other true conservatives WILL NEVER VOTE FOR THEM!!!!!!!!!!!!!!!!!!!!!!!!! Never!
Anonymous
Anonymous   |     |   Comment #23
Governor Christie would get my vote.  At least he says what he thinks.
Anonymous
Anonymous   |     |   Comment #28
I will vote for any GOP, no more country destroyers democrats will ever get my vote. My taxes are going to the illegals and a fraudulent tax collection via Obamacare, I had enough of them.
scottj
scottj   |     |   Comment #29
 I would love to see a real true conservative get the nomination, but lets face facts, they wont be able to win the election. For a Republican to get in he/she will need the independent voters and someone right leaning liberals could live with. I will take Bush, Christie or Romney over Clinton or Warren. Hopefully you "true conservatives" don't be suborn and sit out election in spite  
Anonymous
Anonymous   |     |   Comment #30
And, remember the primary reason Clinton won was b/c of a third party candidate (Ross Perot) and the primary reason Bush Jr. won was b/c of a third party candidate (Ralph Nader)!
Anonymous
Anonymous   |     |   Comment #31
So what are you proposing?  More of the same old two party system, neither of which put the good of our country ahead of what's good for the "Party".
Anonymous
Anonymous   |     |   Comment #32
One should not accept any nomination unless they think they will win, i.e. bring in the "outsiders" in his/her party.  Otherwise, that person may be toast
Anonymous
Anonymous   |     |   Comment #36
Nonsense! 

Anonymous
Anonymous   |     |   Comment #37
Reagan won 2 landslides. They also told him a true conservative could not win.......They were very wrong. When you inspire people and combine that with great ideas.......You will win. He proved it.
Anonymous
Anonymous   |     |   Comment #38
Careful of Republicans that claim they are "moderates"......or "inclusive" ......or "big tent people".......Thatey are just big liberals and losers in elections.....ie.....Bush 41,Dole,McCain,Romney.
lou
lou   |     |   Comment #43
scottj is speaking commonsense. To say you would not support Bush or Christie because they are not conservative enough is ridiculous. Either one would be light years better than the democratic alternative.

 As a matter of fact if anyone here studied Bush's record as governor of Florida, you would find that he was very conservative. The tea party, although well-meaning, is sometimes irrational and plays right into the hands of the democrats. They need to wise up and start living in the real world.
Anonymous
Anonymous   |     |   Comment #48
Wrong.....Jeb Bush and Christie are big liberals and will do nothing to solve the ongoing problems of this country. Sorry, rino, but I will NEVER vote for either of them.
lou
lou   |     |   Comment #49
Actually, the extreme ideologues on both the right and left have a lot in common: they are close-minded, shallow thinkers who rely upon simple, shrill and empty slogans to convey their near certainty that only they know what's good for everyone. 
henry
henry (anonymous)   |     |   Comment #22
another reason to have a balanced portfolio
"Safe" investments like cash are actually riskier than people think
Danb
Danb (anonymous)   |     |   Comment #33
A lot riskier................but you'll have a really tough time convincing the true believers around here. I haven't had so much as a CD since 2009 & don't miss the slow bleed & ridiculous returns. 

What I find interesting is that there are a number of people here who seem convinced they know what the Fed is doing, is going to do & when they're going to do it..................& they think it's all bad for CD buyers. I'm not so confident. But If I were, then I wouldn't be stupid enough to believe all that & at the same time still be buying CDs at these rates.
 
Anonymous
Anonymous   |     |   Comment #34
Again, where can one/you park money with the same low risk?
Anonymous
Anonymous   |     |   Comment #46
It depends what you mean by low risk. If you mean FDIC insured, then the answer is nowhere & this (losing game) is the only game in town. But it's not a game that someone is forcing you to play nonetheless. 

The other side of that argument is that your low risk game here may be low risk because of the FDIC, but it's also high risk at the same time. I know of no other "investment" that has essentially been at high risk of losing purchasing power every single year for at least the last 5 years..................& has in fact lost purchasing power in at least some of those years. 

Considering that everyone seems to be in agreement that rates aren't going up soon & even when they do, will probably be minimal, you can't blame anyone for wondering what the plan is here for those still heavily in CDs, what their end game is................other than pointlessly complaining, whining, & blaming others for their stubbornness in refusing to adapting to reality & doing what they need to do. 

I don't know what CD rates are going to be in 3 or 5 years, but I'm confident of one thing.That no matter what CD rates are in 3-5 years, the "real return" after inflation won't be significantly different than what you guys are complaining about today. 

Now I will go away & someone can come here & say that I'm an idiot & that they're multi millionaires who have always made it big in CDs & how they still have that 7% CD from God knows whom & have been doing just fine all these years, blah blah blah. 
Anonymous
Anonymous   |     |   Comment #47
You don't understand how many millionaires are here looking to supplement their wealth with FDIC-insured CD's. Some could earn 0% interest and never run out of money. For them, 3% works out just fine.  
henry
henry (anonymous)   |     |   Comment #51
to #46:
actually cash has lost to inflation every year for the last 5 years if i'm correct. when was the last year it beat inflation? 2007?
Anonymous
Anonymous   |     |   Comment #39
So then, #33, why are you even following the threads on this site:  depositaccounts.com since you have no interest in CDs. 
Anonymous
Anonymous   |     |   Comment #45
I don't routinely follow the threads here, I come here once in a while. But your statement implies something more interesting in that (in your mind) someone who isn't a current real estate investor should have no business, no interest & no voice in a real estate blog, just as someone who isn't currently a CD buyer should have no interest in coming here & someone not currently investing in stocks should let himself become dis-informed about the market. In all 3 cases they should either go away or they can stay................but have no opinion, no input. 

Instead you should thank me for coming by once in a while, on the off chance that something I say or imply might jolt someone out of their stupor. 
Anonymous
Anonymous   |     |   Comment #52
Just as I thought, #45.  Just another TROLL trying to "stir the pot".
Anonymous
Anonymous   |     |   Comment #41
Oh, but we do...
The FED speaketh and it sounds familiar...
For example, the August 2003 statement of the FOMC indicated that "policy accommodation can be maintained for a considerable period," a formulation replaced a few meetings later with the comment that the Committee could be "patient" in removing policy accommodation.
jeff
jeff (anonymous)   |     |   Comment #44
and the lower the yields go and the better value the stock market becomes, the more people put more into cash and less into the stock market...
Anonymous
Anonymous   |     |   Comment #55
As the fed keeps rates low, the only market that has actual liquidity, is CDs. Brokers arbitrage the debt market, by borrowing money at low rates, and buying long bonds. Risk free money for the ultra wealthy, in a manipulated market. A chart of margin debt, of equity markets, is at an historical high, as hedge funds borrow money and leverage their option trades. This is reflected in extreme volatility, in stock prices, during the week that options expire. In main street, mortgage lenders have originated a 31% increase, in new home-equity loans, during the second quarter of 2014. For the small investor, as long as rates are artificially manipulated, they are the only ones coming to the table with actual money.
Anonymous
Anonymous   |     |   Comment #35
The massive rally in the equity markets over the past two days confirms the 'dovish' nature of Yellen's outlook for rate increases in the future. Another words, if there will be any hikes they will be very small, gradual and won't begin until much later in the year. Mr. Market loved it and responded in kind with the best rally since 2011. Those savers with funds in deposit products will continue to be disappointed through at least 2017 with below historical interest rates.
Hoody
Hoody   |     |   Comment #53
on another note...... got a lousy 40 dollar Toyota settlement check the other day, seems that's considered income and is taxable, rats lol
Anonymous
Anonymous   |     |   Comment #54
And, your cost basis was/is?