Federal Reserve Holds the Fed Funds Rate at 2.25% to 2.50% and Suggests It is Done Raising Until 2020
Image Courtesy: Washington Post

Federal Reserve Holds the Fed Funds Rate at 2.25% to 2.50% and Suggests It is Done Raising Until 2020

The Federal Reserve acted unanimously today to hold the Fed Funds target rate at 2.25% to 2.50%. Whereas the Fed had previously guided to two raises in 2019, it now indicates that there will be zero. Fed Chair Jerome Powell remains true to his commitment to bow to Presidential harassment.

The Fed is now guiding towards a signal rate increase in 2020. Its so-called neutral rate remains at 2.80% so we’d need to see another rate increase in 2021 to get there, as Powell has committed to doing.

The Fed’s “lower-for-longer” policy is not good for savers. It also isn’t good news for an economy that needs to have a normalized yield structure in order to address incipient inflation, and for a Fed that needs to have the ability to be responsive to the next downturn. And, it doesn’t seem to be good for banks either as the interest rate curve is very compressed, with the 10-year trading down to at 2.55% in the immediate aftermath of the announcement.

In the past, I have suggested that the depositors should be cautious locking into CDs against a Fed that is raising rates. Today’s developments, however, make CDs substantially more attractive for money that you are certain that you will not need until maturity. One-year online CDs at or above 2.85% would seem to be particularly attractive. You may even find higher one-year rates at local banks and local credit unions.

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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