bank rates

Fed Continues To Waffle On When It Will Begin Raising Rates … June, Fall Or Later?

The Federal Reserve is starting to feel like the watched pot that never boils.

For more than a year, as the U.S. economy has heated up, analysts have been watching the nation’s central bankers seemingly creep closer to raising interest rates.

But following the regular meeting of its rate-setting committee on Wednesday, the Fed’s official statement gave no indications when that might happen.

Instead, the nation’s central bankers indicated they remain concerned the U.S. economy is not strong enough yet to shift course.

This all matters because when the Fed starts raising its rates, your interest rates — the interest you receive on certificates of deposit, savings and money market bank accounts — will start to creep upward, too.

For six long years, personal savings have earned almost nothing, as the Fed has pushed rates to record lows in order to bolster the economic recovery.

The central bank has regularly included language in statements by its rate-setting committee that it expected to keep rates low for a considerable time and that it would be “patient,” seeking clear signs the economy was back on track, before changing direction.

But for 12 straight months, from February 2014 to February 2015, the U.S. economy added more than 200,000 jobs a month, pushing the unemployment rate down to 5.5%. Other signs were also mostly positive.

In March, the Fed’s rate-setting committee dropped the word “patient,” from it statement. Most analysts concluded it meant the Fed hoped to start raising rates this summer — probably in June.

Better times for personal savers finally seemed to be just around the corner.

Then came a rash of sobering news. The government’s latest jobs report indicated that the country added only 126,000 jobs in March, a sharp decline from the previous month.

Economic growth was also lower than expected for the first quarter of the year, and inflation continues to run well below 2%, which the Fed considers a sign of a healthy, growing economy.

Piled on top of long-standing concerns about weak wage growth and the continuing struggles of the global economy, particularly America’s trading partners in Europe, the news seems to have cooled the Fed’s outlook — at least for the near-term.

“In determining how long to maintain” current interest rates, the committee said it “will assess progress — both realized and expected — toward its objectives of maximum employment and 2% inflation.”

The Fed did not rule out June in its latest statement. But it now looks as though July, or more possibly the fall, is more likely for the Fed to begin inching rates upward.

Based on public statements, some members of the Fed even believe it might be wiser to wait until 2016.

In other words, things are getting better, but not fast enough for the Fed to provide any relief for America’s long-suffering savers.

The central bank has driven interest rates to record lows by drastically reducing what’s called the federal funds rate, which is what commercial banks pay to borrow money from each other through the Fed.

The rate has been essentially zero since December 2008 – the longest period in the Federal Reserve’s history.

Making borrowing cheap — or in this case, free — is intended to bolster growth by making it easy for businesses to make new investments.

But when banks can borrow money basically for free, they don’t need to offer you much in the way of interest to get you to put your money in their institutions so they can lend it out.

One measure of how little savers are being paid is the Cost of Funds Index compiled by the Federal Home Loan Bank of San Francisco. It asks banks in California, Arizona and Nevada how much they’re actually paying for deposits.

The index hit a record low of 0.663% in September. Although it’s rebounded slightly since then, it still sat at only 0.700% this February.

Back in 2008, before the Feds lowered the federal funds rate to zero, it was nearly four times more — 2.757%.

Savers have responded by reducing the amount of money invested in CDs from a record $1.4 trillion dollars in late 2008 to less than $500 billion today.

Once it begins, the bank is expected to boost the fed funds rate by a quarter point every few months.

The most recent official survey of the Fed’s 17 governors shows they expect the federal funds rate to be just below 1% by the end of this year, just below 2% by the end of 2016, and to reach their ultimate target of 3.75% sometime in 2018.

Savers have waited years for what the Fed calls a return to financial “normalcy,” and what we would call a reasonable return on our bank deposits.

The latest statement from the Fed makes it impossible to know whether that return will start this summer, this fall, this winter or even later.

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