bank rates

Fed May Kick Us In The Teeth Once Again

Interest rates may remain at record lows beyond mid-2013The Federal Reserve soon could sock us with more bad news: Record-low interest rates will be around even longer than first predicted.

That’s one more terrible blow for anyone who relies on decent interest rates on money market accounts and CDs to live.

The news came Tuesday with the release of minutes from the Dec. 13 meeting of the Fed’s rate-setting committee.

During that meeting, members worried the August prediction that interest rates would be held at record lows “at least through mid-2013” might have been too optimistic.

Swell.

The Fed hopes to make its rate-squashing intentions clear when it begins sharing members’ interest rate forecasts following its policy-setting meeting Jan. 24-25.

From the Wall Street Journal:

“Central bank officials had been growing increasingly uncomfortable with a statement they made in August of last year, when they said that short-term interest rates were likely to stay close to zero at least through mid-2013. Several officials believe that, with inflation coming down in 2012 and unemployment expected to stay too high until the end of 2013, rates are likely to stay at a record low beyond mid-2013.”

The minutes show the board expects “a moderate pace of economic growth,” slight declines in unemployment and low inflation in the short-term.

But members of the Federal Open Markets Committee also believe the economy is weak enough to maintain its rate-setting policy, which has held the federal funds rate at near zero since December 2008.

The federal funds rate is the interest rate banks pay to borrow money that other banks have on deposit with the Federal Reserve.

That policy has helped torpedo short-term savings and CD rates because banks no longer need our money, all in a failed (and continuing) effort to boost the economy through exceptionally cheap loan rates.

Still, the Fed hopes that adding a forecast for when the board might increase the federal funds rate — will “help the public better understand the Committee’s monetary policy decisions…”

That forecast will include predictions for what the rate might be through the rest of 2012 and the next two years.

This first prediction should give us a better — if more terrifying — picture of how long savers might be forced to live with rock-bottom rates.

What the Fed minutes report, though, is enough of a sucker punch already: “…Several members noted that the reference to mid-2013 might need to be adjusted before long.”

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  1. Doug said:
    on January 4th at 09:43 am

    If you are relying on bank interest to live, I suggest you consider other investment vehicles to diversify your portfolio a bit.