Well, it looks like it’s one down, three to go for the Federal Reserve as they promised to keep short-term interest rates freakishly low for at least the next two years (and possibly much longer) while holding in reserve three other options – changing their mix of assets to lower long term rates (which doesn’t appear to be necessary at the moment), spurring banks to lend by paying less on excess reserves, and, of course, the big kahuna of about a trillion dollars more in Treasury purchases, otherwise known as “QE3″.
By promising to keep rates low “at least through mid-2013″ in the policy statement released, the central bank assured the nation’s big banks of continuing to make big profits for the next two years on the interest rate spreads.
Of course, this will continue to punish the nation’s savers who, for the foreseeable future, will be looking at rates of one percent or less for certificates of deposit.
Good luck, risk averse seniors…
There were three voting members of the Fed who disagreed with this action – Richard Fisher, Narayana Kocherlakota, and Charles Plosser – so, retirees will at least have some company in objecting to yet another first-of-its-kind monetary policy move that benefits the big banks and hurts the little people.
The Fed also downgraded their outlook on the U.S. economy, noting that growth has been “considerably slower” than they expected so far this year with indicators suggesting “a deterioration in overall labor market conditions”.
As usual, the two statements are shown side-by-side below.
About the only other important change in the statement was the acknowledgment that the slowdown in growth has not just been due to temporary factors such as the disaster in Japan and high energy prices, the committee noting that these factors “appear to account for only some of the recent weakness in economic activity”, meaning that, we probably won’t hear the word ‘transitory’ from the Fed for quite some time.
About The Author - Tim Iacono, a retired software engineer living in Bozeman, Montana, is the founder of The Mess That Greenspan Made. (EconMatters author archive here)
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.
EconMatters | Dynamic View | Facebook Page | Twitter | Post Alert | Kindle