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The Fed in transition mode

By Mark Hamrick · Bankrate.com
Monday, December 9, 2013
Posted: 4 pm ET

Ahead of this month's meeting of the Federal Reserve, at least a couple of variations on the theme of transition are on the agenda.

First, the Senate is expected to confirm current Vice Chair Janet Yellen for the central bank's top job, meaning she'll likely be ready to take the post as Chairman Ben Bernanke steps away at the end of January.

Yellen was approved by the Senate Banking Committee last month, with support of some Republicans on the panel. Bernanke is expected to preside at his final news conference as chairman this month.

Secondly, growing pressure is on the Fed to begin scaling back asset purchases. The November employment report provided a fresh indication that the job market is healing. Unemployment fell to 7 percent, closer yet to the Fed's own stated threshold of 6.5 percent. If the Fed actually begins extracting some of its extraordinary measures aimed at boosting the economy, interest rates are eventually expected to rise. "You are going to see it in mortgage rates, especially the 30-year fixed and 15-year fixed-rate mortgages," says Scott Anderson, chief economist at Bank of the West.

Unfortunately, not much help is on the horizon for savers. "You are probably not going to see it in your bank accounts anytime soon, " Anderson says. "The deposit rates are still going to remain at zero because the Fed is committed to keeping those short-term rates near zero for a considerable period of time."

When they were last surveyed, members of the Federal Open Market Committee indicated they didn't expect an increase in the benchmark rate anytime soon. "We do not think the (federal) funds rate is going to be raised until late 2015 or early 2016. So it is going to be a kind of a weird environment, where the cost of getting a loan and financing a car might go up, but your deposit rates, if you are a saver, are not going to go anywhere," says Anderson.

The Fed's two-day meeting begins Dec. 17, with the chairman's news conference the following day.

Are you ready for rising interest rates?

Follow me on Twitter:  @hamrickisms.

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Chief economist, Bank of the West

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