Federal Reserve Holds Fed Funds at Zero to 0.25 Bps; Cash Looks Like a Loser
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Federal Reserve Holds Fed Funds at Zero to 0.25 Bps; Cash Looks Like a Loser

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Federal Reserve Chairman Jerome Powell has ended 2020 with all sorts of dovish, benign language, holding monetary policy as easy as possible.

He isn’t forecasting any rate hikes before 2023, with only one Fed governor suggesting that rates will rise in 2022. The Fed continues to target inflation around 2.00% and will ultimately like to see the Fed funds rate around 2.50%. At the same time, the Fed remains committed to using its full range of tools until the pandemic ends. Since the prevailing view on Wall Street is that the pandemic will end and the Fed will taper its bond buying in 2021, the yield curve is widening following this Fed’s announcement.

The Fed’s policy is the one that helps financial managers and puts support beneath the US stock market. It isn’t the right policy for maintaining the purchasing power of the dollar. And, it is a policy that is unfortunate for an aging (and increasingly risk-adverse) population where interest does not come anywhere near the rates required to maintain real wealth.

Yet, it is the prevailing view that it is the right policy for an economy grappling with a virus, and it is becoming the unanimous view that President Biden and Treasury Secretary Janet Yellen are going to reappoint Jay Powell. So, it looks like cash is going to be trash for a quite while.

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Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to bank transparency and the climate crisis. Since co-founding BestCashCow in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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