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Fed Holds Steady - What to Expect from Deposit Rates


Fed Holds Steady - What to Expect from Deposit Rates

As widely expected, the Fed decided not to raise interest rates on Wednesday at the end of its third scheduled FOMC meeting of the year. The interest rate paragraph in the policy statement has no changes from what the Fed said in January and March:

the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In trying to predict what the Fed will do in June, economists were looking for specific language in this policy statement. Based on what the Fed included and what it left out, the chance of a June rate hike appears unlikely.

First, the Fed didn’t add back the phrase about "balanced" risks. That suggests the Fed isn’t ready for another rate hike. The policy statements in October and December both had this "balance" risk phrase: "the Committee sees the risks to the outlook for both economic activity and the labor market as balanced."

Second, the Fed’s view of the economy was a little more pessimistic than in the previous two meetings. The statement warned that "growth in economic activity appears to have slowed" and that "[g]rowth in household spending has moderated."

Third, the Fed didn’t mention its "next meeting" in the statement like it did in October, the meeting before its December rate hike meeting. In October, the statement gave a hint about the rate hike by saying "[i]n determining whether it will be appropriate to raise the target range at its next meeting, …"

Finally, only one FOMC member dissented. Just like the March meeting, Kansas City Fed President Esther George voted against today’s policy action since it did not make a 25-basis-point rate increase. A June rate hike would have been more likely if additional members had dissented with George.

Based on today’s policy statement, I think September is more likely than June for the next rate hike. That will depend on economic data from the first half of the year that’s good enough for the Fed to agree on a rate hike.

Effect on Deposit Rates

I’m afraid banks are unlikely to move much on deposit rates until we see another Fed rate hike. The December Fed rate hike didn’t help deposit rates. In fact, long-term CD rates are lower now than in December. However, the next Fed rate hike should have more of a positive impact since it will indicate that the December rate hike wasn’t just a one-time event. Of course, the markets and the economy will have to remain stable after the rate hike. If the market and the economy experience turmoil like they did in January, banks will hold off on deposit rate hikes just like they did this year.

Future FOMC Meetings

The next three FOMC meetings are scheduled for June 14-15, July 26-27 and September 20-21. The June and September meetings will include the summary of economic projections and a press conference by Fed Chair Yellen.

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Anonymous   |     |   Comment #1
The Fed is clueless and deathly afraid of Wall Street's reaction to any rate hike whatsoever. No hikes are the best you will get because NIRP may be down the road.
Anonymous   |     |   Comment #3
Fed's rate raise was condition to employment numbers then to the unemployment numbers then to GDP then to inflation then to global political state then to the economy then to the political outcomes then to wall street demands then to congress questioning Yellen and approving her stand then all of a sudden it is conditioned to take into consideration all of the above at a same time in a same meeting in a same FOMC environment and the result is PERMANENT stalemate or status quo.

And there you have it, conditional on all numbers above and the funny thing is, they fudge all of the above numbers before any meeting to suit their objective not to do anything.
Smokeboat (anonymous)   |     |   Comment #4
**** savers anyway...just clogging up the banks with a bunch of money.  Think I'll go eat worms.  
Anonymous   |     |   Comment #5
The Fed's mandate is not to ensure high rates for savers.  People talk here like ZIRP (or close to it) is some corrupt violation of the public trust.
Anonymous   |     |   Comment #6
Anonymous   |     |   Comment #7
The Fed's mandate was not to print money and give it away to corporate America on the expense of the savers. I think this un-ZERPED the truth that the FED became political body for the liberals and piggy banked free slash accounts to be paid by the taxpayers (savers). The FED owes us big time.
Anonymous   |     |   Comment #8
"The Fed's mandate was not to print money"...where in the Act does it say this?  It doesn't, it creates it through other tools which are not precluded by law! 
Anonymous   |     |   Comment #9
It doesn't.  That's why "The Fed's mandate was not to print money"!

It was never a  mandate!
Anonymous   |     |   Comment #10
Don't assume that which is not there is there
uncle   |     |   Comment #11
"The FED owes us big time."  There's a line in a movie "you know how this is going to end don't you" and we who are savers will never see anything but more abuse.
Anonymous   |     |   Comment #13
The IMF suggested a tax on wealth, all wealth. Your savings, equity in a home and other assets would be included. Add it all up and pay a one-time (so they say) 10% tax. That's right, that's what the IMF recommends. Own a 200K home along with 500K in life-long savings? Your bill, payable to your freely elected government will be $70,000. Oh, and don't forget you still owe income tax, state tax, local tax, school tax and sales tax. Think of the 70 grand as a bonus you owe to the government who brought you war after war after war and more folks on food stamps than ever before.
Anonymous   |     |   Comment #14
Still more than what one came to earth with...relax and enjoy what you have and think of the estate/income taxes during the 1940s.  And, later Howard Hughes initially had claims on his estate by 3 states which if deemed valid would have collected over 100% of the estate!  Perhaps Prince will not experience that.  AND, AND, both did not have wills...compounding the "problem."
Anonymous   |     |   Comment #15
Given the thousands of illegals and Muslim "refugees" flooding into America daily under Obama's open borders policy, a creative way must be found to feed, clothe, and support all these newcomers.  Taxes alone are not enough.  Wealth confiscation is obviously the answer.

When, in 2008, Obama spoke of "wealth redistribution" (remember "Joe the Plumber"?), most voters back then believed he would redistribute American wealth among US citizens.  That's what I thought Obama meant.  Little did we realize Obama's actual intent was redistribution of American wealth on a far more grandiose scale, to non-citizens as well.  Such policies as this require innovative funding.  Wealth confiscation is innovative and it fills the bill.  After all, why should one person have more money than another?  And that thinking includes American people and all foreigners as well.  Obama believes everyone should have the same, and he is acting vigorously on that belief, to the very best of his ability.
Anonymous   |     |   Comment #16
And, the thousands that Reagan let in in the 1980s....all of "them" do it!
Anonymous   |     |   Comment #17
President Reagan, in a deal with the Democrats, signed legislation (Simpson Mazzoli) to put an end to illegal immigration.  The Democrats were in full control of Congress at that time.  They broke and violated the deal, making a fool of Reagan, who had trusted them to honor their side of the bargain.  But Reagan is NOT responsible beyond that, beyond having been foolish enough to trust Democrats, for letting in thousands.  President Reagan was frying bigger fish back then:  the end of the Soviet Union.  In that effort he was successful, so I can overlook his having been so foolish back then as to trust Democrat liars, Teddy Kennedy foremost among them.   
Anonymous   |     |   Comment #18
The President administers the actions of Congress...Reagan did just that!
Anonymous   |     |   Comment #21

OK, got it.  You're posting from Colorado . . right?  Dude, you gotta cut back.
Anonymous   |     |   Comment #22
Mexico...I went south to balance some of the numbers.  :-)
Anonymous   |     |   Comment #19
To #8, 9, 10 and others who doubt the illegal printing of FED's money
This is how printing money works:
The FED called all of the big banks CEOs in a secret conference room and told them:
We will call QE (the artificial creation of money) as legit money swap, but actually in your ledgers you will call it lending money to the FED which will follow with borrowing money from the FED at reduce rates (0%) and you will lend this newly created money to the treasury, corporations or individuals and call it economic stimulus. Obama spent $1 trillion of this dollars on new "solindras" and renewable energy start ups (which by the way all pocketed the money and filed bankruptcy) and gave billions of dollars to GM, GE and number of other "shovel ready projects", ACORN and hundreds of other communities of his choosing.
And all of these activities were booked as an addition to the national debt.
And that is how the FED printed the money, without physically printing the money.
Anonymous   |     |   Comment #20
And, the economy did not tank as it did under Hoover. 
Smokeboat (anonymous)   |     |   Comment #23
Theft by fungibility...My dear Watson.