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Fed Removes “Patient” But a June Rate Hike Looks Less Likely


Fed Removes “Patient” But a June Rate Hike Looks Less Likely

The second FOMC meeting of the year ended this afternoon, and the Fed opened the door to a June rate hike by removing the word "patient" from its policy statement. However, the Fed sounded more pessimistic about the economy. In the January statement, the Fed said the "economic activity has been expanding at a solid pace". In today’s statement, the Fed said the "economic growth has moderated somewhat." In the new forward guidance language, the Fed made it clear that it would not raise rates unless it sees " further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term." Thus, if we don’t see improvements in the economy, there’s little chance of a rate hike in June.

The FOMC also released its new economic projections. These new projections suggest the Fed will probably not start hiking rates in June. First, future inflation rate projections for 2015 and 2016 were reduced. For the end of 2015, the core PCE is projected to range from 1.3% to 1.4%. This is down from the December’s projections of 1.5% to 1.8%, and it’s much lower than the 2% target rate. A similar reduction was made for the 2016 projections.

Like inflation projections, GDP projections also fell. In fact, GDP projections went down in 2017 in addition to 2015 and 2016.

These lower inflation and GDP projections were likely the reason for the downward projections of the target range for the federal funds rate. The dot plot at the end of the projections document showed that fewer rate hikes are expected in the next few years. For example, no FOMC participant is now expecting the Federal funds rate to be over 4% by the end of 2017. In December, three participants were projecting a Fed funds rate to be over 4%.

The Fed Chair Janet Yellen held a press conference after the FOMC meeting this afternoon, and she made it clear that the removal of the word "patient" from the statement doesn’t mean that they will be impatient regarding a rate hike. They’re in no rush to increase rates.

Future FOMC Meetings

The next two FOMC meetings are scheduled for April 28-29 and June 16-17. The June meeting will include the summary of economic projections and a press conference by Chairwoman Yellen.

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Anonymous   |     |   Comment #1
Rates will not go up........OMG I just looked at my brokered 10 year CD at 3.25%.......Wow it increased in value by over $500.........I would think of selling it but why? 3.25% is the best anyone will see for years......I might sell if I needed the money.....But otherwise I'll hold on to it......Be a fool to let it go right now.
Anonymous   |     |   Comment #2
PS-It was already worth about $300 more than principal prior to the $500 increase......So now I'm up almost $800 in value alone......Not even counting interest. It's nice......But where would I go if I sold? I can't beat 3.25%
Anonymous   |     |   Comment #7
3.25% for a 10 year term is a killer deal.  With the interest you earn, you would double your investment  if you could keep 3.25% for apx. 22 years.
Anonymous   |     |   Comment #13
And the money pulled out in 22 years will be worth at least 44% less, what a deal!
henry   |     |   Comment #5
you can predict the future? 
in 2007 (back when you could get 6% on a CD), were you saying we would have 0% rates for 7 yrs? 
Anonymous   |     |   Comment #19
Looks good and I did the same last year as part of my ladder.  You can still get 2.95 brokered CD for 10 years (Vanguard Synchrony Bank).    The value of the CD is determined by the secondary market like a bond.  Someone would have to by your CD.  Also, some brokered CD's are callable. 10 years is a long time and who knows what rates will be in the future.  I do see a lot of rates dropping like Synchrony and CIT.
buckeye61   |     |   Comment #3
Clearly, the Federal Reserve is not anxious to raise interest rates. Listening to Chairperson Yellen speak today about the numerous things that will need to happen to compell the FED to act was very telling. We may see a "Token" small increase in the rate later this year, but it seems unlikely that rates will move past 2% in the future unless there is unexpected spike in inflation......and a REALLY BIG spike at that.
Anonymous   |     |   Comment #4
I agree.....and so pathetic how they choose their words.....They think we are all so stupid.
jeff   |     |   Comment #6
7 years of 0% rates are showing the risks of cash. good to have some cash probably, but also good to have some diversification...various asset classes
buckeye61   |     |   Comment #8
I think that would be true for Retirement accounts even if rates had not been stuck in this endless cycle, but short term emergency savings accounts the Stock and Bond markets are a little too risky for some of us.
Anonymous   |     |   Comment #9
There was a reason to remove the word "patient" from the Fed's policy statement. It's called GIVE UP on any rate rise this year. Heck, we are on a verge of a recession looking at the projected GDP, plunge in commodity prices and deflationary indicators. By the time they are through we may be in QE4 and NIRP (Negative Interest Rate Policy) along with the rest of the world.
Anonymous   |     |   Comment #10
I didn't expect anything different and still don't going forward for years to come.  I believe most of us will never see a significant raise in interest rates in our lifetime.  Our national debt and the Wall Street bankers will not allow that.
Anonymous   |     |   Comment #12
The Trick To Increase Consumption: Punish Savers
While lowering interest rates increases disposable income and enables an expansion of debt, it also generates a disincentive for households to forego current consumption by saving disposable income rather than spending it.  Near-zero interest rates actively punish savers by reducing the interest income earned on low-risk savings accounts and certificates of deposit (CDs) to near-zero. Savers are pushed into either investing in high-risk markets that benefit the financial sector or by spending rather than saving—a choice that benefits the state, as more spending generates taxes for the state.
Anonymous   |     |   Comment #22
Translation: When an economy isn't robust and isn't expanding at a steady clip (and that's the U.S. situation for some time and it looks likely to be the situation in the near-term), central banks such as the Federal Reserve have an incentive to take measures--including setting relatively lower interest rates--to encourage spending and stave off deflation and help achieve a lower rate of unemployment and underemployment. If an economy is heating up and expanding steadily, central banks have the opposite incentive--including setting relatively higher interest rates--to discourage spending and a high rate of inflation.
Anonymous   |     |   Comment #14
As long as the banks can borrow money from the FED at a low rate <3%, the savers will be given chicken feed for years to come.
The savers money are excess and the banks do not want them because of the FDIC insurance cost.
Anonymous   |     |   Comment #15
I'm a retired person.  I have a VERY small pension and I receive a social security check smaller than what most other people get.  But I do have a substantial savings "nestegg" and I don't spend a lot of money, so I get along just fine as things are today, even with the really low interest rates.  I have enough interest income, together with pension and SS, to where I don't have to eat into my nestegg to live.

If interest rates go up it will be bad for me because of taxes.  I will have a lot more "inflatodollars" of earned interest, but I'll have to pay tax on those extra dollars at a rate higher than what I pay now on the interest I already earn.  Inflatodollars sound great because the numbers can become seemingly large.  But they don't buy you much, and they are taxed at confiscatory rates.  So I hope interest rates remain where they are today.  Higher interest rates are just a concealed and clandestine way for the government to increase our already-high taxes.
Anonymous   |     |   Comment #16
Although I get your point #15 it quite doesn't work that way. First, it's your choice to live a frugal lifestyle where you don't have to rely on for example, the recommended 4% withdrawal from one's retirement savings. Others have loftier goals for retirement, like enhanced travel and leisure activities in their so-called golden years. Second, if one were to receive double the current interest rates on deposit accounts, one's tax rate would not double. "Confiscatory" tax rates are in the eye of the beholder. My Dad used to say, "Be glad you are paying taxes. It means you are making money." That was during the administration of Republican President Dwight D. Eisenhower, when a 92 percent marginal income tax rate for top earners in the United States remained from the previous administration of Harry S. Truman. At the time, the highest tax bracket was for income over $400,000. Guess what? Americans and our economy prospered.
Anonymous   |     |   Comment #18
I agree.  The the highest tax bracket  for income over $400,000 should be at least double what it is today. 
Anonymous   |     |   Comment #25
What a short sighted and ignorant comment. $400k during the Eisenhower admin. vs. now is similar how? I see you are in the camp that believes poor people create jobs. What a LIV. 
Anonymous   |     |   Comment #23
Tax "rates" today are not defined exclusively by tables and worksheets in the 1040 instructions.  You will discover this if your income ever rises.  Also in fairness, I neglected to mention I'm on Medicare, including Part D.  That's where a significant portion of the "rate increase" comes from.  Trust me, it's ridiculous;  highly non-linear.  Have been retired for thirty years so speak from experience.  Taxes have never been worse.  Anyone wishing for a rise in dollar income, without a corresponding jump in purchasing power, is just dancing to the tune of the tax man.  I hope those in power leave interest rates alone.
Anonymous   |     |   Comment #17
The problem is that interest rates are not this low because of market forces.  If that were the case I wouldn't complain.  It is the fact that the Fed is making them lower than they would be, means real money is being forceably removed from my interest income, to subsidize other goals.  That is what is most unfair, in my estimation.   
Anonymous   |     |   Comment #20
I believe the Feds want to increase interest rates.  But, Fed Chair Janet Yellen is affraid she may cause a major decline in the stock market.  It's all about "Wall Street" and not "Main Street".
Anonymous   |     |   Comment #21
Low Interest Rates And Unintended Consequences
It seems the households of savers suffering from low/or even negative yields are being forced to address their inability to save enough money to pay for education, healthcare, and retirement obligations. Many of the most financially responsible people are hunkering down and saving more while many non-savers have gone on a "spendathon" and reacted by taking on more debt.
Anonymous   |     |   Comment #24
I dunno about Bill Gross.  Course he is so rich what I think matters not at all.  But I agree with your article this will not end well.

What I foresee is a sort of "United States of Cyprus" scenario.  It's all political, and there is already ample evidence of the power here of the ever more numerous spendthrifts and the "have nots".  So eventually, when other nations realize we're goners and cease lending to us, the Washington crowd will simply confiscate American savings, like in Cyprus.  It's only just another form of wealth redistribution and is nothing new or noteworthy given the direction the USA already has taken in this century.  Move on.  Nothing to see here.  Marxism has been around for a long time.
Anonymous   |     |   Comment #27
Yes, this will not end well. See: http://finance.yahoo.com/news/japan-says-could-join-china-backed-aiib-conditions-025947174--business.html
Anonymous   |     |   Comment #28
Fed Gift
The Fed acknowledged that economic growth has moderated, indicating it is in no rush to raise interest rates. The central bank said it won’t tighten until it is “reasonably confident” inflation will return to its target and the labor market improves further. Treasuries investors see the policy statement as a gift that keeps on giving, as U.S. 10-year note yields traded below 2 percent for a third day. The yield is down 16 basis points this week, the biggest drop since the week ended Jan. 9.
Anonymous   |     |   Comment #31
This is going to end very badly. See:
Anonymous   |     |   Comment #32
May be as bad as when everyone said all the bad things would happen when the calendar year turned 2000.
Anonymous   |     |   Comment #33
With the election in 2016 the Fed will be reluctant to raise/lower rates next year...thus if it is going to do anything between now and early 2017, it should be "soon."