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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