Fed Projections Show Zero Rates Through 2022 - Strategies for Savers

POSTED ON BY

As expected, the Fed didn’t announce any policy changes at the end of its two-day meeting. Today’s FOMC statement included the same paragraph from April’s statement which describes the Fed’s intention to maintain the near-zero target rate “until it is confident that the economy has weathered recent events.”

The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

The Fed also announced that it plans to keep buying Treasurys and mortgage-backed securities “at least at the current pace.” This continues the commitment of “unlimited QE” that the Fed first announced at its March 15th emergency meeting.

The Fed has been successful in keeping the markets running, and it did note this in the statement which is a change from the April statement:

Financial conditions have improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

No one dissented at today’s meeting.

Summary of Economic Projections

The first updates since December to the Summary of Economic Projections (SEP) were released today. The changes from December were massive. The most interesting projections for savers is the dot plot that lists FOMC member projections of the target federal funds rate. The projections are disturbing. None of the 17 FOMC members forecast any increase for 2020 and 2021. Only two of the 17 forecast an increase in 2022. This is a clear sign that the Fed is prepared to maintain its zero interest rate policy (ZIRP) for multiple years.

The Fed’s SEP in December proved to be way too optimistic. Of course, that’s the result of the pandemic, but it’s possible that the Fed is way too pessimistic now. If the economic recovery proves to be much stronger than expected, it’s possible that the Fed won’t keep rates near zero for multiple years.

A strong economic recovery will require that the unemployment rate to return close to its pre-pandemic levels. Based on the SEP, the Fed doesn’t see that happening through 2022. Fed members are forecasting an unemployment rate of 9.3% by the end of this year. The expectations are for this to fall slowly in future years. The Fed’s forecasts are for the rate to fall to 6.5% by the end of 2021 and to 5.5% by the end of 2022. In December, the Fed had forecasted this rate to be in a range of 3.5% to 3.7% through 2022.

In addition to low unemployment rates, inflation will have to be near or above the Fed’s target rate of 2% before the Fed will consider rate hikes. Based on the SEP, the Fed doesn’t see that happening through 2022. Fed members are forecasting a Core PCE inflation rate of 1.0% by the end of this year. The Fed’s forecasts are for this rate to slowly increase to 1.5% by the end of 2021 and to 1.7% by the end of 2022. In December, the Fed had forecasted this rate to be in a range of 1.9% to 2.0% through 2022.

Today’s news on the May CPI inflation points to a long period before inflation numbers get back on track. The inflation measures published this morning aren’t the Fed’s preferred inflation measure (PCE), but today’s CPI numbers do show that we are still in a deflation period. This was the first time that the core CPI has declined for three consecutive months.

Press Conference

The Fed Chair Jerome Powell’s press conference today mostly reinforced the message from the statement and from the SEP. For savers, the Fed Chair made it clear that we shouldn’t expect rate hikes for a long time:

We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates.

The Fed Chair also reinforced how massive a shock to the economy the COVID-19 pandemic has been:

This is the biggest economic shock in the U.S. and in the world really in living memory. We went from the lowest level of unemployment in 50 years to the highest level in close to 90 years, and we did it in two months. Extraordinary.

The only positive thing to note for savers is that the Fed Chair gave no signs that the Fed is considering negative rates. The Fed Chair did say that there are discussions regarding Yield Curve Control (YCC), but its effectiveness “remains an open question.” By using the YCC policy tool, the Fed would target certain long-term interest rates through the buying and selling of Treasury notes and bonds. If the Fed implements YCC, it would likely result in a longer period of ZIRP.

Future FOMC Meetings

The next three FOMC meetings are scheduled for July 28-29, September 15-16, and November 4-5. The September meeting will include the summary of economic projections. All meetings now include a press conference by the Fed Chair.

Strategies for Savers to Maximize Cash Yield

Based on what the Fed has said and based on how deposit rates have fallen, I’m afraid we are in for a long period of very low deposit rates. Signs are that this ZIRP period will be worse than the ZIRP period from 2008 to 2015. Deposit rates have fallen much faster this time. For example, it took about 20 months after the Fed started ZIRP in December 2008 before Ally Bank’s online savings account yield fell to 1.25%. It took less than two months for this to occur this time. It took more than four years for Ally Bank’s 5-year CD yield to fall to 1.50% after the start of the 2008 ZIRP. This time, Ally Bank’s 5-year CD yield fell to 1.50% just over two months after the start of ZIRP, and the 5-year CD yield continues to fall. It’s currently at 1.35%, an all-time low for the Ally Bank 5-year CD.

During the ZIRP period from 2008 to 2015, online savings account rates remained in a range of 0.70% to 1.00%. I have a feeling that we may see a lower range this time.

The best hope for savers is that the economy does have a strong recovery in the next year. That will boost the stock market which will encourage investors to move their cash out of banks and into stocks. A strengthening economy will also boost loan demand which will force banks to increase their deposits. That leads to higher CD rates and more CD specials.

During the 2008-2015 ZIRP, there were a few rare times when 3% CDs came out. The best example was in late 2013 and early 2014 when PenFed offered long-term CDs with yields just above 3%. If we do see a strong economic recovery, we may see an occasional 3% CD again even if the Fed keeps rates at near zero.

With at least some possibility of 3% CD specials in 2021 and 2022, locking into long-term CDs with rates near 1% doesn’t seem like a good strategy. If we do start to see 3% CDs in 2021, it’ll be better to keep cash in online savings accounts and no-penalty CDs. Then you’ll be able to jump on those CD specials when they appear.

Another option is to keep more cash in high-yield reward checking accounts. There are still several reward checking accounts with yields of at least 3%. Of course, these have balance caps (typically $25k or lower) and monthly activity requirements to qualify for the high yield. Also, it’s likely we’ll see some rate cuts and balance cap reductions. However, many reward checking account rates held up fairly well during the 2008-2015 ZIRP period.

Long-term CDs now only make sense if we’re headed back into a long period of very low rates. In that case a 1% long-term CD will be better than a top savings account with a rate under 0.50%.

It’s wise to remember that no one can predict future interest rates. So if you want to keep things simple, a CD ladder of long-term CDs is always a useful strategy for your safe money. If you’re worried about the possibility of rising rates, choose long-term CDs with early withdrawal penalties of no more than six months of interest.

Another option for your CD ladder is a ladder of short-term CDs, such as those with 1-year terms. Since many 5-year CDs have equal or lower yields than 1-year CDs, the 5-year CD ladders don’t offer much advantage. Of course, 1-year CD ladders don’t offer the rate lock which may be beneficial if rates keep falling.


Comments
me1004
  |     |   Comment #1
I think at this point is obvious: If you have to go for 14 years at zero or extemely low interest rates to prop up the economy, then one, that strategy DOES NOT WORK, you better go to Plan B, and that better include allowing savers to spend, and two, you better consider how you are hurting the economy by undermining savers, leaving them unable to spend, instead they, too, now have to tighten their belts, making matters worse.

The economy is down now not because of an economic collapse, it is down because it has been ordered to close during a pandemic. It has not come back yet because businesses have not been allowed to reopen fully yet, some have been allowed to open but only in a pretty limited sense, and we don't even have a measure of their opening yet, it just happened. Before you start making plans to cut everyone's throat, perhaps you could wait a couple months to see how the economy comes back when businesses are allowed to reopen significantly more or even fully.

These kind of forecasts have a way of making their own reality. If the Fed is telling businesses their business is going to be bad, those businsses are NOT going to reopen fully, they are NOT going to invest, they are NOT going to do what the Fed wants, no matter the interest rate. And consumers, too, will cut back in the face of such predictions.

Frankly, it is time to abandon the idea of putting your savings in bank and credit union accounts. It is a losing proposition. We might as well stuff it undercut a matress. I wish savers could organize a nationwide boycott of banks and CUs until a reasonable rate of return on our investment in a bank account were recognized as necesaary. They are going after OUR money only because we don't do anything to stop them. (And then the banks hit us with a lot of fees too! Its flat out abusive to us). They have to be shown we can completely collapse the econmy if we, too, don't get a decent return.
Fan_of_website
  |     |   Comment #3
I agree. Many groups in this country have organizations that support and advocate for their interests, but savers have been neglected and have no voice, apparently, in how monetary and banking policies are implemented. A boycott of several banks would be harder to conduct/enforce, but perhaps pick one or a couple of the worst offenders (e.g., providing consistent 0.01% returns). Boycotting a large bank like Chase or BofA would also be problematic, but smaller institutions might be more responsive. SAVERS' LIVES MATTER.
P_D
  |     |   Comment #7
1. Economic growth is driven by debt, not savings. And lower rates are good for borrowers. Everyone benefits from economic growth including savers because without it there would be no jobs, no income, no savings and no banks. Everything is relative. If the Fed pursued a tighter monetary policy it could be even more detrimental to your financial interests. The Fed doesn’t create the crises, it reacts to them. And I think it’s flawed logic to conclude that rates aren’t high enough on bank accounts therefore the Fed is doing a bad job.

2. You make the assumption that banks are the only place that savers can invest. But that’s clearly a flawed assumption. Just because a policy might be detrimental to the interests of bank savers, doesn’t mean it is detrimental to savers. Low interest rates, whether intended to or not, favor certain types of investments. You have an opportunity to benefit from that. Ensuring bank savings rates are high is not part of the Fed’s obligations, nor should it be because that would complicate and suboptimize achievement of its main mission. Don’t fight the Fed!
WheelinDealin
  |     |   Comment #9
For those looking for yield, low interest rates favor investments into riskier assets like equities, corporate bonds, mutual funds, etc. instead of safer investment instruments like savings accounts, money-market accounts, and CD's. This creates a artificial bubble.

I have a couple of CD's renewing this year. Considering the current environment I am looking into mutual funds instead of renewing the CD's. I can get 2.6%+ at a fairly safe mutual fund consisting mostly of investment grade gov. bonds compared to CD's which are paying 1.3% and dropping fast.
Jenniferchic
  |     |   Comment #11
What do you mean you "can get 2.6%" in a mutual fund? Your statement is based on past performance. Interest rates are at rock bottom now. You might actually lose money or just be flat. Who Knows. Are you aware what happens to bond funds when interest rates go up? Do some googling. Are you ok loosing principal?
WheelinDealin
  |     |   Comment #13
Interest rates are not going up any time soon. You have to adjust your investments with the the current climate. When interest rates go back up, investments strategies will change again. What do you propose Jennifer...ride rates down to zero? Yes there is risk when you invest in mutual funds, but if you do some homework you can minimize your risk to a acceptable level.
P_D
  |     |   Comment #12
"For those looking for yield, low interest rates favor investments into riskier assets like equities, corporate bonds, mutual funds, etc. instead of safer investment instruments like savings accounts, money-market accounts, and CD's. This creates a artificial bubble."

I was with you right up until the last sentence. Higher levels of equity value (or other investment instruments) don't necessarily equal a bubble. "Bubble" means overvalued, not simply a higher level. I think a lot of people make the mistake of assuming that if the value of equities has advanced over some period of time, that automatically means there is a bubble. If that was true, stocks would never increase in value because the bubble would always pop and they would go back down. Whether or not there is a bubble depends on whether investors believe the values have a rational basis, not on how high they are or even how fast they advanced. Low interest rates do not necessarily create artificial bubbles in equity markets. Sometimes they create lasting value that supports higher long run equity prices.
WheelinDealin
  |     |   Comment #14
In my book, when equities start trading at crazy unrealistic multiples based on their current earnings,,,, we have a bubble.
P_D
  |     |   Comment #15
Perceived stock values are always forward looking. It's multiples of future earnings that matter, not current earnings. "Current" is yesterday's old news. It's not a bubble if earnings increase to rejustify the price.
milty
  |     |   Comment #21
PD#12: Seriously, do you really think the average investor spends time pouring through a company's financial reports, analyzing various P/E numbers, or reading about insider trading before deciding if a stock is fairly valued? There is no other reasonable explanation for the stock growth from 2009 till now except ZIRP causing asset inflation due to TINA/FOMO. When people are buying because they have no choice and irrespective of price, I think you have all the signs of a bubble. Even I, who got mostly out of the market a few years ago, feel myself being pulled back in . . . but am still waiting for the Fed to announce they will guarantee for the next 160 days everyone's principal if they buy stocks now.
GreenDream
  |     |   Comment #22
the average investor? no, the average investor is like any other hypothetical "average person" - not the best and the brightest by definition. The "average investor" is probably among those buying the bankrupt stocks that several click-bait articles of the past few days have been going on about.

am still waiting for the Fed to announce they will guarantee for the next 160 days everyone's principal if they buy stocks now

don't hold your breath.
Robb
  |     |   Comment #35
Milty re @21 you nailed it. Some are in denial here. Good to see some of the frothy conditions letting air out of the bubble today. The Put/Call hit a bullish extreme showing euphoria the past couple of weeks. Banks smoked down about 12% the past 2 day period. Reality check.
deplorable_1
  |     |   Comment #42
@Milty: You are waiting for a guarantee in the stock market? Not going to happen. If you invest in dividend paying stocks at or near a market low I think you have a pretty good chance of coming out ahead. If you missed DOW 18,000 you had best buy this current dip because it probably won't last that long and the market will eventually make new highs again. It happens every time.
milty
  |     |   Comment #63
D1#42: Of course I was only joking about the Fed guaranteeing an investor's principle (note my 160 day timeframe), but on the other hand, since FDIC didn't exist before 1933, I suppose it's possible. I understand about dividend stocks, which I favor as well, but am mostly out now and don't want to jump back in with anything significant enough to make much difference. As you said, "it happens every time," where the key word is time . . . it may happen every time but not every day.
deplorable_1
  |     |   Comment #41
I agree with many of your points me1004. This is very frustrating for sure. The problem is that as a group us "savers" only represent a very small minority of the population. Yes we are a part of the economy that spends but apparently a part that the FED and our government in general has deemed insignificant. I do however think that the FED has been way too negative with their forecast. Kind of a dumb move for the FED since their goal seems to be keeping the stock market afloat. The DOW is down 2,000 points now and I have no doubt from the FED meeting.
WheelinDealin
  |     |   Comment #50
After today's massive drop in the Dow -7%, I expect the drum beat for negative rates to get louder.
kcfield
  |     |   Comment #75
Excellent observations. I have never seen a post on this site with more upvotes.
gregk
  |     |   Comment #2
Wait, - you quoted MarketWatch yesterday saying the end of Fed ZIRP was in sight after that wonderful May jobs report.
#4 - This comment has been removed for violating our comment policy.
P_D
  |     |   Comment #6
Sell toilet paper futures, buy beer futures.
WheelinDealin
  |     |   Comment #10
I remember the good 'ol days in 2019 when one could get almost 3% interest on their money.
P_D
  |     |   Comment #16
You'll be telling your grandchildren about the Yields of '19 some day ... as they yawn and say "Sure grandpop, whatever you say." Kids... whatta they know!?
LISALISALISA
  |     |   Comment #28
I remember in the 1960's...when I used to get 16% for a C.D.
GreenDream
  |     |   Comment #29
if you remember the 60s you weren't there.

Seriously though, you are thinking of the 1980s for the 16% C.D.
me1004
  |     |   Comment #66
LIsaLisaLisa, as GreenDream says, that was not the 1960s. CDs were not invented until the mid-1970s.
Choice
  |     |   Comment #67
The 60s? Merely a fogging time
GerryB
  |     |   Comment #19
Ally Bank is not the best exemplar for a rate comparison to 2008. Ally is the former GMAC Bank, and had the formidable task of shedding the taint of that legacy. Remember Ally’s 2-month EWP and its 5-year CD rates that competitors complained about? Those weren’t charitable acts.

Ally no longer suffers from this encumbrance and has no reason to offer loss leaders.
milty
  |     |   Comment #20
A followup story on those misleading job numbers: https://www.washingtonpost.com/business/2020/06/10/unemployment-error-fix/ , which of course caused those in favor of stock investments to justify even higher prices, and allow the Fed to see their plan as working and Main Street as the sole beneficiary. Anyway, what's interesting to me is how those job numbers are calculated by a survey of 60K households. I always thought it was based on aggregating each state's department of labor unemployment numbers.
GreenDream
  |     |   Comment #23
well you clearly thought wrongly. It's comes from the Bureau of Labor Statistics. By "The state's department of labor unemployment numbers" I assume you mean the number of those collecting unemployment (any other number they'd have would have to be from a similar statistical survey method whether you realize it or not) only reflects those who are unemployed and eligible for unemployment payments. Many unemployed people would not be included because they are not eligible for payments - they quite their previous job, they already exhausted their unemployment benefits, they have never had a job before (IE the next generation of workers, just out of school), etc. Further to that, the BLS method attempts to distinguish between those in the labor market (IE unemployed and looking for work) from those who are not (IE unemployed but not looking for work). Either way of calculating it has it's pluses and minuses.
jimdog
  |     |   Comment #24
I would encourage all to load up on gold. It will outperform all interest-bearing vehicles for the next two years. The FED has guaranteed it!
jimdog
  |     |   Comment #68
Gold is up 3% for the week. It will be much higher at the end of the year due to the FED money printing and keeping rates near zero! CD investing is not for me anymore for the next two years!
jimdog
  |     |   Comment #25
People, don't realize that major, major deflation is here and will be here for years. The FED has shot it's load. Gold is the only alternative now.
Mak
  |     |   Comment #26
Still the best contrarian indicator out there bar none...when the boys on the CD blog start bragging about how many stocks they own you can expect a drop....lol
GreenDream
  |     |   Comment #30
So the market shouldn't be dropping as no-one here was bragging about how many stocks they own ;)
Robb
  |     |   Comment #49
Mak you nailed it. When they start pounding their chests as I noted last week you know a top is soon at hand. The 10/20 day Put/Calls were at some of the lowest readings we've seen over the past decade showing extreme levels of optimism/euphoria. I always get out when we get to extreme levels coupled with daily index chart tags of 70+ RSI another tell tale sign that we were long in the tooth last week.
Mak
  |     |   Comment #61
Robb, I'm sure they all sold yesterday...:)
k7gnae1n
  |     |   Comment #27
Gold is at $1737 today. It was sitting around $1250 for a long time. Does this tell anybody where smart people are putting their money?
jimdog
  |     |   Comment #53
You got that right. Gold will be over $2000 by the end of the year!
blazer9
  |     |   Comment #55
Yes you can lose your money in the stocks or you can lose your money to inflation or you can lose your money to the Government when they confiscate your gold.
It happened before. Good luck to all disciplines
k7gnae1n
  |     |   Comment #71
So go to your local coin dealer... Buy a Bag of pre-1964 dimes which are 90% silver. Find a save place. When the world collapses around you, barter with those thin silver dimes. Everyone recognizes it's storehouse of value.
#72 - This comment has been removed for violating our comment policy.
decades
  |     |   Comment #79
Got about 500 silver eagles
kcfield
  |     |   Comment #31
Debt reduction (once emergency savings are established) remains a viable savings alternative in this near-zero interest rate environment. If one makes an extra 1000.00 payment on a 10% interest credit card--it is just like earning 10%. If one makes an extra 1000.00 payment on a 4% mortgage, it is just like earning 4%. If you have more than one debt, make extra payments on the highest interest loan only and when paid off, move on to the next highest interest loan. More generally, it would be most helpful if this site would expand the range of savings discussions beyond savings accounts and CDs--which suggest just a binary choice. Expanding the semantic range of "savings" to include debt reduction, annuities, precious metals (bullion), savings bonds, etc, would in my view be of value--giving savers a fuller range of options to consider. 
blazer9
  |     |   Comment #36
So are all the enthusiasts you are looking to recruit going to make this a Suzy Ormond x Doug Ramsey Blog Site .
kcfield
  |     |   Comment #39
Blazer: I'm not expecting recruits; I just think that the definition of "savings" should be expanded beyond the usual binary choice of savings accounts vs CDs. If you are implying that most folks on this site prefer sticking with the site's traditional savings and CD information alone you may be absolutely right.If my suggestion is not helpful, I hope Ken doesn't consider it.
blazer9
  |     |   Comment #43
I absolutely respect your view.
Just think there are sites already like the above and the various speculation sites that are widely known. Wouldn't think that another Till in the ground would produce new thinking here without bias.
blazer9
  |     |   Comment #45
You have to admit DA is arguably a "Clean" site especially since we went registered member.
kcfield
  |     |   Comment #51
Your point is well taken.
deplorable_1
  |     |   Comment #44
You are right kcfield but I don't think many people here on DA carry high interest credit card debt. I have $200,000 in credit card debt but at 0% APY earning 2-5% interest and/or dividends. I paid off my mortgage with a 0% no fee balance transfer when interest rates were at 0% last time around but my mortgage was 5.875%. Most people who even have a mortgage are only at 3-4% APY tops currently. Not sure if it would be worth it to pay off a 2-3% mortgage leaving yourself cash poor. All depends on your personal cash situation and savings.
kcfield
  |     |   Comment #62
Hi Deplorable: Please note in my post that I always recommend that emergency savings is established before paying down debt for the very reason you mention: no sense paying down debt and being cash poor.
GreenDream
  |     |   Comment #95
Indeed, in general a good philosophy. However, like most things in life, it depends. If your debt is all high interest debt (like credit cards) better to pay it off and be temporarily cash poor than to keep excess cash and the high interest debt, as that high interest debt will be a anchor weighing your finances down and keeping you poor by draining you of whatever money you do make.
P_D
  |     |   Comment #47
Thank you kc. I think that is a very important and timely reminder of the value of savings which includes reduction of spending.

And I think it gets even better than that. As I used to put it, a penny saved is two pennies earned. It applies to most things that you save money on that are not tax deductible.

You would have to earn more than $100 to equal the savings power of spending $100 less because when you earn the money you have to pay income taxes on it. So every dollar you save is worth more than one dollar earned (assuming the money saved was not tax deductible).

For people in the highest marginal tax brackets that means a penny saved is worth more than two pennies earned. That's a whopping 100% advantage to saving more over earning more. For most people it's not worth 100% more to save rather than earn, but for anyone who pays income taxes it is always worth more to save than to earn.

As to whether or not this topic is appropriate. I understand the idea of focusing on deposit accounts in order not to dilute the information presented. But these are unusual times. How about a Covid/rioting suspension or at least relaxing of those rules to serve the DA readers? I think a topic like this, for example is probably useful to most DA readers. And if there aren't some creative ideas posted, there may not be many readers left at some point who can survive these crises. So I think it's not only in the best interest of the readers but of DA to let participants share creative ideas like this to help them through these trying times.
#52 - This comment has been removed for violating our comment policy.
#54 - This comment has been removed for violating our comment policy.
blazer9
  |     |   Comment #56
Seriously, Do you guys think its coincidence or your methodology
Robb
  |     |   Comment #32
Rarely Fails...Markets typically top out when Daily chart RSI readings hit the 70+ RSI area, the past week many Put/Call readings hit a bullish extreme showing high levels of complacency/euphoria not seen over the past 10 years and bullish posts as we saw here the past week start "chirping" about the bullish market you know a top is not far off.  Rarely fails...
GreenDream
  |     |   Comment #33
bullish posts as we saw here the past week start "chirping" about the bullish market you know a top is not far off

Excellent, now I know the secret to getting more bargains in the stock market, start the bullish "chirping" :D
Robb
  |     |   Comment #34
:))) Hoping we get a decent reset here. God only knows we could use one after the big disconnect between the market/economy. Even Powell yesterday spoke to some of that when speaking about millions out of work that may not have jobs to return to over the next year or two.
Looks like some of those recently minted Robinhood traders are getting a nice education.  
blazer9
  |     |   Comment #37
Sneakily slipping in that Stock talk, Eh fellows?
Yeah I know Its allowed here. Can you stay on your side of the fence>
Robb
  |     |   Comment #38
Blazer ha ha...:))
Mak
  |     |   Comment #83
Sorry GreenDream, it doesn't work that way. Haven't you heard the old saying the market knows all, don't you think the market knows when you're faking, you have to really feel the greed...:)
Shelby
  |     |   Comment #40
I just bought 1000 shares of yahoo....it feels like 1999 again, yippee
P_D
  |     |   Comment #48
Ally just reported lowering Online Savings Account APY from 1.25% to 1.10% effective 6/12.
milty
  |     |   Comment #64
@PD#48: It's just getting depressing . . .
Bozo
  |     |   Comment #57
Concerned about the stock market's drop today? Well, the key is diversification. My CDs didn't lose value today, and I suspect yours did not, either. Folks chasing easy money in the stock market get cleaned out periodically. That happened today. Long-term investors, well, it's just a hiccup.

As I've noted, my CD ladder (both IRA and after-tax) give me an "anchor-to-windward" with respect to the harsh winds of market volatility. I've yet to drag my anchor.
P_D
  |     |   Comment #58
If you lock in a CD at the current circa 1.5% (or lower) rates regardless of term, you are locking in a guarantee that your dollars will lose buying power during the term of the CD. In other words you are locking in a sure loss.

If you don’t offset that loss with something else that increases in value more than the inflation rate in order to offset the sure losses in your bank deposits, you are suffering a loss of the only thing that matters when it comes to money i.e. its buying power.

I can’t speak for others, but I think some people here have misinterpreted some of the things I have suggested regarding putting some of your assets into the stock market. And I think some of the negativity seems to come from those who seem gleeful when stocks have a bad day probably because they have missed so many good opportunities to invest in the stock market that seeing it have a bad time helps them assuage their regret.

In my case, of course I would rather see the stock market have a good day than a bad one. But I hardly pay any attention to it either way. In the scheme of a longer term, the ups and downs are meaningless. A day like today is a yawn to me. If the stock market fell by 50% from were it is today, dollar for dollar, I still would have made a better return on my stocks over the decades I have been in the stock market than on my bank deposits. And that’s the point. The stock market is a long term winner, not a good place for short term speculation for most people.

In the kind of environment we are likely to be in the bank deposit market for the next year or two, you are going to lose buying power if you don’t take some risk elsewhere. You can make a rational decision to take a sure loss in order to avoid taking any other risk, or you can make a rational decision to try to offset some of that sure loss on your bank deposits by taking prudent risks. I choose the latter.
Choice
  |     |   Comment #59
Ken, why only four posts for blog (recent comments)? Why not 10? If not , why not none!  HELLO!!!
milty
  |     |   Comment #77
PD#58: I am certainly not totally against stocks (made a significant nickel before getting out a few years ago), and i think we agree that one shouldn't invest significant sums in stocks that one can't afford to lose, but for me age plays a factor as well. Consider that it took about 25 years for stocks to recover from the Great Depression, one needs to consider what his/her long-term game really is. That said, what annoys me today about stocks vs CDs or bonds is the way the Fed (and employers--401k (Ted Benna has his regrets) vs pensions) has interfered, siding with Wall Street vs Main Street. There is no balance for those who cannot afford or lack the acumen to be in stocks . . . it's as if the Fed (and employers) has given most of us a one-way ticket to Las Vegas--good luck, spin the wheel.
GreenDream
  |     |   Comment #85
Consider that it took about 25 years for stocks to recover from the Great Depression

Well, it's really a matter of perspective and where on the curve you came in. While it took 25 years to get back to where stocks were just before the Great depression, it only took a few years (less than 5 after the crash) to get back to where it was before the bull run that ended In the depression and about a decade for it to reach where stocks were just a year and a half before the depression.

Put another way, generally speaking, If you bought in 1922 and held in 1929, you were back to where you were when you started by 1933 and it was all upside after that. If you bought at the peak in 1929, well you had decades of misery waiting for your stocks to climb out of the hole the crash put your portfolio in. On the other hand if you didn't buy until the bottom hit in 1932, you were doing fantastic throughout the rest of the depression and beyond. (Even if you waited a year after that 1932 bottom before "buying the dip" your stocks would have been doing very well for the rest of those "about 25" years).
Choice
  |     |   Comment #86
The real impact was the indirect impact to those not directly in stock market and flowing from the economic disruptions on main street America
111
  |     |   Comment #87
“Consider that it took about 25 years for stocks to recover from the Great Depression ...”. This assertion has been commonly made for decades, but is misleading if not incorrect.

Specifically -

“- It took the DOW 25 years to regain its 1929 highs in nominal terms [only looking at share price].

- Including dividends, which reached a high of 14% at the depths of the crash (when the market was down almost 90%), it took about 10 years for 1929 DOW investors to get their money back.

- Including deflation, dividends, and a broader market measure than the DOW (according to Hulbert), it took 5 years.”

https://www.businessinsider.com/henry-blodget-new-study-stocks-only-took-5-years-to-recover-after-1929-2009-4

Should dividends be included in the story? Of course - it's an apples-to-oranges comparison if they're not.
GreenDream
  |     |   Comment #94
Indeed, dividends should be included. Unfortunately you don't see many charts of the stock market performance for the time period that includes them. When most people look at the stock market all they see is the stock price (is it up? Is it down?) and don't even consider things like dividends.
jimdog
  |     |   Comment #60
A chief stock analyst said today "The stock market is more broken today than it was on March 23rd, and it is entirely due to the Central Bank. The most remarkable aspect of the Federal Reserve policy over the past 12 years is that very little of it has been related to economics. It has almost entirely been tied to financial markets, and leadership of the Fed over that time has repeatedly exhibited ignorance as to the functioning of financial markets".
milty
  |     |   Comment #65
Reference?
jimdog
  |     |   Comment #69
Authored by Mike O’Rourke, Chief Market Strategist at JonesTrading
Choice
  |     |   Comment #74
Got it ...fed is tied to financial markets yet exhibits (presumably through its leaders...how else can it act?) ignorance of same! Really? Umbilical cords are amazing 
jimdog
  |     |   Comment #78
The FED is also tied to its big funds owned by its members. Do you think there is any conflict of interest here? Jay Powell owns up to 50,000,000 in ETF funds. No wonder He decided to say I'm not even thinking about thinking about raising rates.
milty
  |     |   Comment #81
https://www.bloomberg.com/opinion/articles/2017-11-02/jerome-powell-at-the-fed-is-trump-s-kind-of-wealthy
So, ole Jerome has at least $50M or maybe double that, but in either case he's the wealthiest-to-date to lead the Fed. Notwithstanding his thinking or lack thereof, he did raise rates . . . so, like it or not we need to go back to the future.
#70 - This comment has been removed for violating our comment policy.
mffarrell
  |     |   Comment #73
Has anyone here funded their GTE Financial add on CDs? Even though you can add beneficiaries to the account, how do you feel about going over $250K?
MY2CENTSWORTH
  |     |   Comment #76
#73, I just made two smallish transfers under 10K in the past 10 days. Seamless and quick, no muss no fuss! IMO their website is clean, clear and precise. Additionally, I have a 3.15% six figure CD maturing next week and plan on using an external bank account to push the funds into my 3% add-on GTE acct. As far as being over 250K,,,no way would I do that unless it is properly titled so that it is insured.
Robb
  |     |   Comment #82
With the next 1-2 years looking bleak on the rate front have been adding onto CD's where possible. Can report MACU is still taking add-on's as well having done another the past week. Just hope NFCU honors their add-on's in coming months as well.
gregk
  |     |   Comment #88
Reassured to hear no prob doing add-ons at MACU.
deplorable_1
  |     |   Comment #89
Just starting to fill up my 3.5/3.75% MACU add-ons at the moment. I wouldn't go over the $250,000 cap at GTE personally at least not in this current environment. I would rather risk some cash in the market for a higher dividend yield since you are risking anything over $250,000 anyway.
mffarrell
  |     |   Comment #91
I have 3 beneficiaries on my GTE accounts which would give me a total of $1M insurance on all my accounts combined.

Even with NACU insurance at $1M, are you saying you wouldn’t go above the $250K limit?
deplorable_1
  |     |   Comment #92
Sorry #91 I must have read that wrong if you have it all NCUA insured then I wouldn't worry about it. Although that is a lot to have at one FI. I would however subtract the interest that will accrue during the term of the CD just in case of a failure. I have had to get money back from the FDIC before but never the NCUA so I can't speak to how long it would take or if you would end up recovering your interest over the limit or not. I'm assuming you don't have any other add-on CD's with higher yields which I would fill up first. Hopefully you got the GTE jumbo rate when you signed up 3.30% APY? I only have the 3.04% rate myself.
gregk
  |     |   Comment #93
I have no regrets terminating my GTE membership shortly after established 3% 5 year add-ons a little over a year ago, - add-ons that would have been very useful to me now for deploying funds from now maturing CD's. They are bar-none the most incompetent and even disgusting FI I have ever done business with, - unscrupulous and unethical in my own experience. There is no product or rate they could offer that would ever induce me to have anything to do with them again. Great if you all love GTE, but no mourning from me if they go under somewhere along the line. Be careful.
deplorable_1
  |     |   Comment #104
@gregk: What did GTE do to you? I have had a few bad answers from CSR's and they have issues with doing CD multiples but no different than other credit unions that seem to have similar problems. I like their online chat feature which helps quite a bit.
gregk
  |     |   Comment #105
I'd love to elaborate, dep, but feel it unwise to say things in service of my specific identification by any GTE representative who might lurk here, given GTE's continued possession of all my information they might deliberately "mishandle" in ways I wouldn't appreciate (call me paranoid if you wish). I fully acknowledge one person's horrible experience with specific individuals shouldn't by itself impugn an organization's "global" reputation for everyone, but nonetheless find the memory of GTE's shakedown tactics and other cumulative demands and offenses (even if only in my own case alone) still makes me shudder.
lou
  |     |   Comment #106
Interestingly, I had a great experience with GTE, maybe because I had a very knowledgeable and helpful representative. Can't imagine what happened to you, but so far your experience is a million miles from my own. Could you describe in very general terms what happened to you?
keithsanfran
  |     |   Comment #111
I completely agree with you about GTE. I have never experienced such incompetence in dealing with all the personal information I was required to provide them with to open the add on cd.... I was very close to opening the 3.5% add on, but at the last minute, I decided to not open it. I use CD's so I can sleep at night. Just the thought of having substantial money with GTE would cause me to lose sleep. I feel like giving them so much of my financial information was a big mistake. I feel they should be investigated. Very scary.
alan1
  |     |   Comment #96
mffarrell (#91) -- You write: "I have 3 beneficiaries on my GTE accounts which would give me a total of $1M insurance on all my accounts combined."

If you are the sole owner of the accounts with three beneficiaries, I do not know that you have a total of $1,000,000 of NCUA deposit insurance coverage. I suggest you take a look at the NCUA Share Insurance Estimator at https://www.mycreditunion.gov/share-insurance-estimator-home
GreenDream
  |     |   Comment #97
Grrrr. I hate when the post fails to post properly. Editing to fix, hopefully it'll fully take this time. Grrrr.

He has multiple accounts; try the following scenario:

account 1 - Just Him (single) - 250k insured

account 2 - Him with beneficiary 1 (POD/ITF) - 250k insured

account 3 - Him with beneficiary 2 (POD/ITF) - 250k insured

account 4 - Him with beneficiary 3 (POD/ITF) - 250k insured

total 1 million insurance according to your own link.
GreenDream
  |     |   Comment #98
The one caveat, of course, is that the money is split evenly between those accounts, any money over 250k in any one of those accounts would not be insured even if all the accounts combined have more insurance than there is money.


IE 300k, 100k, 100k , 100k is only 600K, which is less than 1 million but 50K is uninsured because it's sitting in an account that has exceeded the 250k limit.
alan1
  |     |   Comment #99
You are correct, GreenDream (#97). That's why I wrote that if mffarrell is the sole owner of the accounts w/ 3 beneficiaries, I didn't know whether the accounts would have one million dollars of insurance coverage. The way mffarell's comment was worded, it wasn't possible to discern the ownership of the accounts. I hope the owner of the accounts has structured them in the manner you describe. Thank you for amplifying my comment.
NYCDoug
  |     |   Comment #100
Does anyone know if it is possible to "harvest" interest from GTE's 3.30% add-on CD with impunity?

Last year, unthinkingly, I used inherited funds to fill this CD to $250k. I now have over $8k (soon to be $9k) in interest [what GTE calls "dividends"] posted to my account, and compounding.

Is there a way -- without "breaking" the CD (and ideally without incurring major fees) -- to trim it back down to $250k (or less) in order to circumvent loss of significant interest, should GTE go under?

Or would it be possible to designate beneficiaries -- or a joint owner -- ex-post-facto, in order to boost coverage? (Assuming the same basic FDIC rules apply to NCUA deposit insurance) . . .
mffarrell
  |     |   Comment #108
Now, GTE has an online feature to add beneficiaries to your accounts. I believe you can also receive your dividends without breaking your CD.
Hooked
  |     |   Comment #109
@mffarrell - Many thanks for alerting this new feature at GTE of adding beneficiaries online. There is an ‘Everything Else’ button towards the right, just before the log off button. Under ‘Resources’, choose ‘Forms’ and you will see the Beneficiary form as the first option. SSN and DOB of beneficiaries required.
mffarrell
  |     |   Comment #101
Thanks everyone! Green Dream is spot on!
Ratesaver
  |     |   Comment #80
I have seen a number of comments on getting rich quick... How is this going to happen, Please let me know as I have very few yrs left.... Older investers will tell you to calm down and go with the flow..Watch what works now and go for it . I am sure things will work it self out and stay the course with cds with some investment in the stocks... After this virus I believe there may be a time to put some money to work but now calm down....
GreenDream
  |     |   Comment #84
Anyone who is telling you how to get rich quick is scamming you. "getting rich" takes time, it doesn't happen quickly for most folk (unless you are born into it).
deplorable_1
  |     |   Comment #90
I have yet to ever meet anyone in real life who has gotten rich quick except for one lottery winner who received around 3 million. All her relatives had their hands out and she seemed to just love the attention that everyone was paying to her. Long story short her cash is almost gone after various loans, useless overspending and bad "investments". Bottom line even getting rich quick is useless if you don't first understand how to handle your finances.
me1004
  |     |   Comment #102
I have to say, the retail sales report out today goes right along with what I said in the OP. Even as the economy was only starting to re-open some in May, retail sales skyrockets more than ever before in a single month, up 17.7% in one month, double what the “experts” expected. Yet, the Fed is out here announcing the economy is dead for as far as the eye can see, we need to keep interest rates at zero for at least that long, a message that only tells businesses and individuals not to invest, no one will be buying for years to come.

https://www.businessinsider.com/us-retail-sales-may-record-double-estimates-economy-vshaped-recovery...

Of course people will be buying, just as they did in May. The only reason they stopped was stores were not open to buy from. Many continued to work, the others got unemployment plus $600, that bonus leaving many who worked at lower income levels getting 100% of their paycheck, and most others getting nearly all of it. And lots of other money pouring out to the economy and to individuals. They are not shorted, they have the money to spend, all they need is a place to open so they can spend it. The economy is not dead, it is merely taking a nap — unless actions are taken that do undermine it. The Fed’s announcement will only dampen the economy, not help it.

I think the Fed announcing that at least the next two years will be so terrible we can’t even think of raising rates was a VERY bad move and a very bad outlook of the Fed members, and it is NOT how Fed communications have been in the past. They should not have specified two years! They should have said something more vague, such as “for the foreseeable future,” which people can interpret as they want but could be as short as simply through the end of this year. Powell blew it, that Fed statement, and the Fed’s outlook, was very unprofessional.

And being as the overwhelming majority of the US economy is pumped by retail sales, today’s report very promising for a fairly quick recovery, not two years of a dead recovery.

As I said in my OP, the Fed announcement was without the measures needed to draw such a conclusion. You can’t see how the economy is doing if it is completely shut down. Now we have May information, it was amazing even as the Fed announced it was dead, and it was amazing even with the economy only starting to open some, not yet anywhere near fully open!

The end is not near, as the Fed would seem to think. And it should not have announced an outlook that for all intents and purposes said it is. That announcement was no better than strictly amateur, far below the standards we expect of the Fed.
gregk
  |     |   Comment #103
It was one report, - and now you are prophesying. C'mon.
lou
  |     |   Comment #107
The two-year commitment to keep rates at zero is as good as the check in the mail. If inflation returns next year, the Fed will drop the commitment as fast as a speeding bullet. Makes you wonder if the guy running the Fed knows what the h*ll he is doing.
GreenDream
  |     |   Comment #110
For the most part, the Fed is reactive. As the economy changes the Fed's response changes. The only way a reactive response leads to wondering "if the guy running the Fed knows what the h*ll he is doing" is when the reactions make the situation worse. Other than the out of cycle rate cut literally days before the scheduled meeting (which ended up spooking the markets - the opposite of what the move was meant to do), that hasn't been the case.
Fed Chair to Savers, “We have to look out for the overall economy”

It felt a little more normal today with the regularly scheduled FOMC meeting and press briefing taking place. That’s an improvement from March when two emergency FOMC meetings replaced the regularly scheduled meeting. The press briefing by Fed Chair Jerome Powell was virtual with reporters asking questions via video conferencing. So the effects of the pandemic were still apparent. Of course, the effects of the pandemic are clearly apparent from the Fed’s policy, but today’s FOMC statement and press briefing didn’t offer anything new. The paragraph in today’s FOMC...

Continue Reading
Fed Meeting: FOMC Slashes Rates to Zero at a Sunday Emergency Meeting

In an unprecedented Sunday emergency FOMC meeting, the Fed slashed the target federal funds rate by 100 basis points which moves rates back to near zero. The Fed also began a $700 billion quantitative easing program. After going all last week with no emergency FOMC meeting, I had assumed the Fed was going to wait until its regularly scheduled meeting on Tuesday and Wednesday before announcing policy actions. This Sunday meeting is a surprise, and I think it shows how serious the coronavirus pandemic is. Below are a few of...

Continue Reading
Fed Meeting: the Pause Continues - Review of Impact to Savers

As expected, the Fed decided today to hold rates steady. This is the second straight meeting in which the Fed has held rates steady. The target range of the federal funds rate remains at 1.50% to 1.75%. The following is an excerpt of today’s FOMC statement with the all important rate description:

There were only two minor changes in the FOMC statement. The Fed’s description of household spending changed from “rising at a strong pace” in December to “rising at a moderate pace” today. The other change was in the...

Continue Reading
Fed Meeting: the Pause Returns - Review of Impact to Savers

The Fed decided today to hold rates steady. The target range of the federal funds rate remains at 1.50% to 1.75%. The following is an excerpt of today’s FOMC statement with the all important rate description:

All of the FOMC voting members voted for today’s policy action. Unlike the last four meetings, no one dissented.

Summary of Economic Projections

In addition to the statement, the Fed released an updated summary of economic projections (SEP). In the first table of this summary, you can see the Fed’s economic projections for future years and...

Continue Reading
Fed Meeting: 3rd Straight Rate Cut - Review of Impact to Savers

The Fed decided to lower rates for the third time. The target range of the federal funds rate was reduced 25 bps to 1.50% to 1.75%. We are now down 75 bps from the recent peak of the target range for the federal funds rate.

The following is an excerpt of today’s FOMC statement with the all important rate cut description:

The big change in today’s FOMC statement as compared to the September statement was the suggestion that the Fed has moved back to a pause mode. Here’s what changed in...

Continue Reading

More Past Offers