Fed Funds Rate Discussion

Updated: December 16, 2008

NO LOWER TO GO - 0-.25%. The Fed just announced that it is lowering the Fed Funds rate to 0-25%. There is now no lower to go. The Fed also indicated that it expects to keep rates at 0% for the foreseeable future. From the FOMC statement:

"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time."

The Fed did this because the economy is contracting, cutting inflation and raising the spectre of deflation. This is the first time in Fed history that the Fed Funds rate has gone below 1%. Now, with rates at 0%, the US economy is increasingly looking like Japan's in the 1990s.

The Fed Funds Rate is a key indicator in determing the savings account rates, money markets rates, and CD rates that banks will pay. To see how the Fed Fund rate has impacted CD rates, savings rates, and money market rates, please see my Savings and CD Rate Analysis.

CD rates and savings rates were falling today in anticipation of a rate cut. But a lot of the top rates have not fallen as the leaders have kept their rates up, for now. Geauga Savings Bank even increased the rate on their 18 month CD from 3.75% APY to 4.20% APY. This may change now that the Fed cut to 0%.

FederalFundsRatePredictions