bank rates

Federal Reserve Declares Record Low Interest Rates Here To Stay Until Mid-2013

Fed declares ultra-low interest rates here to stay until mid-2013The Federal Reserve crushed whatever hope we had for higher interest rates today.

Its rate-setting committee decided to hold interest rates at record lows “at least through mid-2013.”

That is disastrous news for anyone who needs a reasonable return on their CDs or money market accounts to make ends meet.

It means the Fed will continue to provide the nation’s commercial banks with all the money they need, essentially for free, for another two years.

Since the government-controlled bank adopted that policy in December 2008 the banks haven’t needed to pay consumers for their deposits, cutting the return on those accounts to the nearly nothing.

As a result we’ve seen the average interest rate on five of the most popular certificates of deposit — 3-, 6-, 12-, 24- and 36-months — fall to record lows this summer.

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%.

For months, the Federal Reserve had been ambiguous on when it might reverse course and allow interest rates to rise again.

After each meeting it would issue a statement that only said it would keep the federal funds rate near zero for an “extended period.”

When asked just long that might be after the committee’s June meeting, Fed Chairman Ben Bernanke said: “We believe we’re at least two or three meetings away from taking any action . . . and I emphasize at least.”

Since the rate-setting committee had four more meetings scheduled for 2011, we thought that meant we might see higher interest rates by early winter.

But it has crushed those hopes.

The Fed justifies its policy of pushing interest rates far below what a free and open market would provide as an attempt to boost the nation’s struggling economy.

Providing commercial banks with cheap money might punish savers, but it allows those banks to offer low-cost loans to everyone from business owners to home buyers.

The idea is that that will encourage companies to expand and hire more workers, and families to purchase a bigger, nicer home.

It hasn’t worked.

By almost every measure — job creation, home prices, manufacturing output, consumer spending, commercial construction — the economy is recovering from the 2008-09 recession more slowly than the Fed expected.

Concerns that we might be sliding back into another recession, a so-called “double-dip” recession, have intensified this summer.

In its post-meeting statement, the Fed’s rate setting committee characterized the state of the economy in more pessimistic terms than before.

It decided to commit itself to holding interest rates extremely low for another two years in an effort to reassure institutional investors and corporate decision makers that ultra-cheap credit would be available for much longer than anyone expected.

Nothing was said about the price savers will have to pay for that policy.

We’re the forgotten, never-mentioned victims.

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Comments (4)
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4 Existing Comments
  1. JW said:
    on August 9th at 06:45 pm

    Truly pathetic Federal Reserve…

    During the dotcom blowoff, they held rates at zero and this fueled the housing double.

    Now we’re in the housing blowoff, and they’re holding rates to zero for another 5 years…

    There will be big profits to be made by identifying and riding the NEXT bubble….

  2. SeniorSaver said:
    on August 9th at 08:48 pm

    It’s hard to know how to react to the enormity of Bernanke’s continuous blundering. Anguished cries and profanity aren’t sufficient.
    It would be nice to remove Bernanke and Yellen from office, but what I plan to do is to lend whatever support I can to legislation that’s been proposed (but seems to be going nowhere in Congress) to strip the Fed of its so-called “dual mandate.”
    The Fed’s power shoud be limited to containing inflation and providing liquidity to banks and primary dealers during financial crises.
    Its role of managing the economy and supporting asset prices–and its ongoing war on savers–should be ended once and for all.

  3. Earl said:
    on August 9th at 11:54 pm

    The Fed has printed money to the tune of $1T for QE1 and 2. Wonder how much they will print up for QE3. They want inflation to pull the economy out of the recession. For some reason they think inflation under 2% is just fine with them. They are sacrificing the old and retired people’s savings, pensions, and SS buying power. People who thought they were going to get by on their savings will find their money’s compounding ability greatly reduced or zeroed out by inflation. If the Fed wants people to spend their money, they need to raise interest rates, not keep them artificially low. Time to get rid of Bernanke. At least three of the Fed’s Presidents dissented against the committal mid-2013 statement, wanting to keep the time frame open.

  4. Brian said:
    on August 10th at 11:34 am

    Capital One just dropped .10% again today. Discover Bank dropped .05%
    a few days ago. As a senior depending on bank interest for my income I am outraged !!! Another pay cut for our nation’s elderly.