Today's FED Meeting Reaffirms Original Time Line for Raising Rates

March 13, 2012 No Comments »

Today’s FED meeting brought little new news as the Federal Open Market Committee voted to keep interest rates at near zero percent (0.25%) for another term.

Despite recent positive signs in the economy (lower jobless rate, DOW hitting 13,000, etc) steep gas prices and general public sentiment were preventing Ben Bernanke from backing off his stance on keeping rates at such low levels. The outcome of the meeting was essentially reiterating the FOMC’s original projection of keeping rates historically low until sometime in late 2014.

What maybe should have received a little more attention in the meeting was the warning that ‘inflation may rise temporarily’ due largely to the increase in energy prices. This may be alarming for savers as interest rates (particularly savings rates) remain at record lows. So far in 2012 though, inflation rates have remained relatively positive compared to last year. In January of this year, inflation was sitting at just 2.93%. Compare this to the average of 3.16% for 2011.

The FED also refused to take another round of quantitative easing off the table should economic conditions worsen. Another round of quantitative easing could hasten inflation though, so the FED may be reluctant to call for another round if inflation picks up at a quicker pace than projected.

Affect on Bank Rates:

Deposit rates – While we did see an uptick in some money market accounts this month, expect rates in general to make no significant move up or down. It’d be nice though if they could at least keep up with inflation, but don’t count on that for many months to come.

Refinance rates – Both new home loan and refinance rates will continue to hover just barely above all-time lows. Refinance rates should continue to be very attractive for eligible borrowers as long as the FED keeps the federal fund rate at it’s current level of 0.25%.

 

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