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Bad news for CD rates

By Sheyna Steiner · Bankrate.com
Wednesday, January 25, 2012
Posted: 1 pm ET

Dashing the hopes of CD buyers everywhere, the rate-setting committee of the Federal Reserve -- the Federal Open Market Committee, FOMC, for short, -- convened this week and declared that economic conditions could warrant "exceptionally low levels for the federal funds rate at least through late 2014."

As a result, barring astonishing economic growth, CD rates will remain depressed for the foreseeable future.

The FOMC uses the federal funds rate as a means of fostering maximum employment and price stability. It's called the federal funds rate because federal funds are generally overnight loans between banks of cash reserves kept at Federal Reserve banks.

The interest rate they charge each other for these typically short-term loans is the federal funds rate. The price that banks pay for overnight loans directly impacts the interest rate paid on deposit products such as CDs, savings accounts and money market accounts. Short-term Treasury yields are also directly affected by the federal funds rate.

It's also the basis for the prime rate on which many consumer loan products are based.

For more information, Claes Bell recently wrote a blog that details more ways the Fed influences your life.

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3 Comments
Bobbi
January 30, 2012 at 5:44 pm

Recipe for keeping unemployment high is to keep interest rates low.

Sheyna Steiner
January 30, 2012 at 10:28 am

Thanks for writing.

I'm curious, what makes you say that Bernanke has been anything but apolitical? He was first appointed by President Bush.

Further, it's arguable that businesses have been hurt by low interest rates. Businesses have enjoyed extremely low borrowing costs in recent years and that has been reflected in bond yields.

Secondly, I am not a currency expert but the dollar fell against the Euro and other major currencies after last week's Fed meeting, and the Fed has been criticized for it's weak dollar policies.

It doesn't sound to me as though the Fed believes the dollar is within a hair's breadth of collapse.

As well, both the Bush administration and the Obama administration were responsible for orchestrating industry bailouts -- auto and finance.

Rudibaker
January 28, 2012 at 2:48 pm

In my opinion the Central Bank under control of the FOMC is a major cause for continued stagnation of the economy. The Federal Reserve under direction of Chairman Bernanke has been playing politics, which is illegal. Manipulation of CD interest rates has built up the coffers of the Federal Government at the expense of private enterprise and individuals. Even while inflation looms and people are being robbed of just and reasonable earnings, the FOMC believes it is avoiding a complete collapse of the dollar, but it is not, delaying the inevitable will only make the correction more painful. It is better to let those weak areas of the economy go bust so a healthy economy can emerge. Moreover better the Board of Governors put on notice for playing politics with the "O" administration