Posts Tagged ‘federal funds rate’

The Fed predicts two more lean years

9 August 2011

From today’s Federal Open Market Committee announcement:

‘The Committee currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.’

Ouch. This was apparently supposed to be a mild monetary stimulus — the fed funds rate target is being held at 0-0.25% for two full years instead of just for a vague “extended duration” — but it’s also one more dismal forecast, from an authoritative source.

Good article here by MSNBC.com’s John W. Schoen, who lays out some of the Fed’s alternative options and seems underwhelmed by them. For example, the much-discussed “QE3” option of buying long-term T-bonds in an effort to force long-term bond rates down further has two big disadvantages: (1) Low long-term bond rates don’t seem to have sparked much investment or consumption so far, so it’s doubtful that lowering them further will make much difference; (2) Lowering them even further will reduce the already much-reduced incomes of retirees and others living on interest.

What’s a central bank to do?

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The Fed does the expected, sort of

16 December 2008

I don’t think anybody was expecting the new federal funds rate target to be a range, but everybody was expecting a rate cut, and we got one, from an already-low 1% to a new-record-low 0 – 0.25%.  I also don’t think anybody is expecting it to turn the economy around, considering the failure of already-low short-term rates to do that, but Wall Street’s broad stock indexes were up 5% for the day.   My guess is the traders see the move as a sign the Fed is still doing all it can and then some.

fed funds chart 2008 dec 16

All the way down