Posted in CD Rates by Mike Cetera

September 13, 2012 11:34 AM — 4 Comments

Its tempting to say the Federal Reserve is like a broken record. Only today, Ben Bernanke and company smashed the record and the player.

By promising to hold short-term interest rates at record lows at least through mid-2015 six months beyond the late-2014 pledge it had previously made the Feds rate-setting committee today all but guaranteed savers pain will be prolonged.

Unfortunately, it actually could get worse, because the Federal Open Markets Committee has for the first time acknowledged that an improved economy wont necessarily spur it to raise rates.

Heres the relevant sentence from the Feds statement following its two-day meeting:

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. (Emphasis added.)

So, even if theres a significant economic recovery, dont expect the Fed to quickly boost the federal funds rate, the interest rate the Federal Reserve charges commercial banks to borrow money.

This is how the Fed influences how much savers earn on their deposits. If banks get essentially free money from the government, theres no need to pay consumers for their deposits.

Since December 2008, the Federal Open Markets Committee has held that rate at 0% to 0.25%.

And we all know how far the yields you earn on savings acounts and certificates of deposit have fallen since then.

If the Feds prediction holds true, savers probably wont see much in the way of deposit rate increases for at least another 3 years or half a year beyond what we had been told prior to today.

But that doesnt neccessarily mean CD rates will fall again tomorrow.

As weve seen each of the last two times the committee has issued revised rate-setting forecasts, there has been little immediate impact.

Well take a longer look tomorrow at the CD rate history following the Feds announcements.

In the meantime, heres our advice: If youre in the market for a certificate of deposit, walk, dont run to grab the best rates now.

Update: For the first time since the Fed chairman has been giving post-meeting news conferences, Bernanke discussed the toll to savers head-on without having to be asked. So at least hes noticing.

Bernanke argues for the greater good.

Savers are getting hit, but in the end well all be better for it:

Low interest rates also support the value of many other assets that Americans own, such as homes and businesses, large and small.

Indeed, in general, healthy investment returns cannot be sustained in a weak economy. And, of course, it’s difficult to save for retirement or other goals without the income from a job.

Thus, while low interest rates do impose some costs, Americans will ultimately benefit most from the healthy and growing economy that low interest rates help promote.

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