The Federal Reserve released its FOMC Statement today and there were no surprises. The Fed reiterated its support for "exceptionally low levels of the federal funds rate for an extended period." That means savers will continue to earn almost no rate of return on savings accounts and very little on longer-term certificates of deposit. This may force many investors to think about putting cash into other investments, such as bonds.
The statement pointed out that Europe's problems along with a detoriating real estate market and high levels of unemployment will keep the economy subdued for some time to come. Those expecting a roaring V-shaped recovery are starting to realize that's not going to happen. At this point, the world economy is one more shock away from falling back into recession.
For savers this is more of the same. Savings rates and CD rates will continue to drift lower. The bright side has been the significant slide in mortgage rates since peaking in mid-April. The average 30-year mortgage rate is now 4.76%, down from 5.25 in April 2010.
Low rates will also continue to support the stock market. Dividend stocks like Verizon (VZ), AT&T (T), and Pfizer (PFE) lead Dow stocks in terms of yield and offer those needing income one way of generating it. Verizon for instance pays 6.85% versus an average savings rate of 1.31%. But unlike FDIC bank stocks, they also offer the potential loss of principle.
The good news for savers and bond holders alike is the absence of inflation. According to the Fed statement:
"Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time."
Those spreading panic about soaring inflation in 2009 were dead wrong, at least so far. The economy needs a strong heartbeat to stir inflation and all we have now are some sporadic pulses. Despite any sign of inflation, gold remains near a 52-week high as investors remain spooked about Europe's sovereign debt issues.