Federal Reserve Update: November 2011

At this point, Ben Bernanke is like a poker player who has already drawn his last card and pushed his remaining chips into the center of the table: all he can do now is watch how the game plays out.
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It should be no surprise that the Federal Open Market Committee (FOMC) announced virtually no new action in its November 1-2 meeting. At this point, Ben Bernanke is like a poker player who has already drawn his last card and pushed his remaining chips into the center of the table: all he can do now is watch how the game plays out.

In its statement following the meeting, the FOMC expressed optimism that the pace of economic growth was accelerating, while inflation was abating. The optimism on economic growth is borne out by last week's advance estimate of third-quarter Gross Domestic Product; the optimism about inflation is less supported by the most recent data on the Consumer Price Index.

But in light of the continued high rate of unemployment, the FOMC will continue to keep current interest rates low in an attempt to stimulate the economy.

The federal funds rate

In its statement, the FOMC announced that it will continue to keep the federal funds rate in a range between 0 and 0.25 percent, a policy it expects will continue at least to mid-2013.

As a result, you can expect savings account interest rates, CD rates, and money market rates to remain low--perhaps not as long as through the middle of 2013, but certainly for the remainder of this year.

The FOMC also announced that it will continue to buy long-term Treasuries and mortgage-related securities. These moves are designed to push long-term interest rates--especially mortgage rates--even lower than they are today.

MoneyRates.com Interest Rate Forecast: 2011-2012

For the time being, there is no reason to expect that the FOMC will not follow through on its commitment to keep the fed funds rate near zero through the middle of 2013. There are really two things that could knock the FOMC off of that commitment: unusually strong economic growth, or a continued rise in inflation.

Even in the case of strong economic growth, the FOMC is likely to exercise an abundance of caution before raising rates, at least until the unemployment rate is substantially slower. That makes inflation the most likely candidate to cause the Fed to change its position sooner than expected.

The following are dates of the FOMC meetings scheduled for the remainder of 2011 and 2012, along with the MoneyRates.com forecast of the target fed rates that will come out of those meetings. Note that for the time being, these forecasts assume the FOMC will stick to its low interest rate pledge, with the only twist being a shift towards the higher end of the range as time goes on.

December 13th, 2011: 0 to 0.25 percent

January 24th-25th, 2012: 0 to 0.25 percent

March 13th, 2012: 0 to 0.25 percent

April 24th-25th, 2012: 0 to 0.25 percent

June 19th-20th, 2012: 0 to 0.25 percent

July 31st, 2012: 0.25 percent

September 12th, 2012: 0.25 percent

October 23rd-24th, 2012: 0.25 percent

December 11th, 2012: 0.25 percent

The original article can be found at Money-Rates.com:

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