Fed Officials: Next Move Will Be Rate Increase

Fed officials have gone on record as saying that the next move the Fed makes will be a rate increase. It won't be happening anytime soon though.

Fed officials have gone on record as saying that the next move the Fed makes will be a rate increase.  When that happens though, is anyone's guess.  The Fed took a Jekyll and Hyde approach to the economy, noting the weakness of the economy and the potential for growing inflation.  Here's one excerpt from the notes:

"In the Committee’s discussion of monetary policy for the intermeeting period, members agreed that labor markets had softened further, that financial markets remained under considerable stress, and that these factors — in conjunction with still-elevated energy prices and the ongoing housing contraction—would likely weigh on economic growth in coming quarters. In addition, members saw continuing downside risks to this outlook, particularly reflecting possible further deterioration in financial conditions. Members generally anticipated that inflation would moderate; however, they emphasized the risks to the inflation outlook posed by persistent high readings on headline inflation and a possible unmooring of inflation expectations. Against this backdrop, nearly all members judged that leaving the federal funds rate unchanged at this meeting was appropriate and would most effectively promote progress toward the Committee’s dual objectives of maximum employment and price stability. Most members did not see the current stance of policy as particularly accommodative, given that many households and businesses were facing elevated borrowing costs and reduced credit availability due to the effects of financial market strains as well as macroeconomic risks. Although members generally anticipated that the next policy move would likely be a tightening, the timing and extent of any change in policy stance would depend on evolving economic and financial developments and the implications for the outlook for economic growth and inflation."

The Fed expects that economy to remain weak for some time and for inflation to moderate.  It doesn't think that the current 2% rate is particularly accomodative, mainly because banks have restricted their lending and have increased rates on many loans.

The markets largely agree and believe there is a 80% and 70% probability that the Fed will stay at 2% at the September and October FOMC meetings.

From a CD and savings rate account perspective, expect rates to remain at the current levels, between 3-5% APY for at least the next 2-3 months.  Rates will eventually rise, but probably not until sometime in 2009.

Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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