bank rates

Fed Sticks With Plan To Hold Interest Rates At Record Lows Through 2014

Just three board members believe rates should rise this year.The Federal Reserve isn’t budging on its policy to drive interest rates to record lows.

And that’s the good news for savers. It could have been worse (and still could get worse).

Because the economic recovery has cooled in recent months — with household spending and employment gains slowing — there had been speculation the Fed’s rate-setting committee might deliver another blow to savers today.

Such a blow would have occurred if the Fed had decided that short-term interest rates likely would be held at “exceptionally low levels” beyond its target of at least late 2014.

But following its two-day meeting, the Federal Open Market Committee left that target untouched, instead opting to extend through the end of the year a bond-buying program designed to keep long-term borrowing cheap.

This means — for now, anyway — savers are likely to be punished with record-low rates on certificates of deposit, money market accounts and savings accounts for only 30 more months or so.

Do I hear some cheers?

The Fed influences how much savers earn on their deposits by setting what’s called the federal funds rate — the interest rate that banks pay to borrow money that other banks have on deposit with the Federal Reserve.

Since December 2008, the Federal Open Markets Committee has held that rate at 0% to 0.25% in an effort to spur lending and boost the economy.

That cheap money means there’s less demand for your deposits from banks.

There is, of course, no guarantee the Fed will move off the 0% policy at the end of 2014.

Since the Federal Open Market Committee now releases some background data on members’ rate projections, we can see how the committee shifts its beliefs over time.

At the last meeting in April, for example, three of the participants said they believed the federal funds rate should be increased this year. After this week’s meetings, that number remained unchanged.

More importantly, however, there appears to be a growing belief on the board that 2015 is a more likely date for a rate change.

In April and today, seven participants projected rates would rise in 2014. Two months ago, just four suggested the first change would occur in 2015; today that number grew to six.

If the economy continues to slow — or if problems in Europe plunge the world economy into crisis — you can bet the Federal Reserve will revisit and extend this projection into 2015 and beyond.

Don't miss out on the next bank deal. Get the newest deals delivered straight to your inbox!

Comments (2)
1 Star2 Stars3 Stars4 Stars5 Stars (2 votes, average: 5.00 out of 5)
2 Existing Comments
  1. SeniorSaver said:
    on June 20th at 01:44 pm

    I find that waiting for the announcement of a Fed decision on monetary policy is like waiting for the doctor to call with the results of a biopsy. But, instead of telling you that you have cancer, Dr. Bernanke says you have “easing” and “accomodation.”

  2. lightrider said:
    on June 22nd at 09:49 pm