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FOMC Might Keep Fed Funds Rate at Zero Percent Longer Than Previously Thought

FOMC Might Keep Fed Funds Rate at Zero Percent Longer Than Previously Thought

For the past several years the Federal Open Market Committee (FOMC) has stated they plan to keep their key interest rate, the federal funds rate, low until the economic outlook improves. The FOMC said they would keep the rate at near zero percent until the nation's unemployment rate fell below 6.5 percent, which would be around mid 2015.

Interest Rates Forced Down to Record Lows

While this policy has forced mortgage rates to record lows and helped homeowners lower their borrowing costs, it has also forced savings rates, money market rates, and all deposit rates down to record lows. Those whose income comes from interest-bearing assets such as deposit accounts have seen their income decline dramatically. The best savings rates and money market rates are below 1.00 percent these days, the lowest rates in more than a generation.

FOMC Might Keep Fed Funds Rate at Zero Percent Longer Than Previous ThoughtThe FOMC has also been purchasing long term U.S. Treasuries and mortgage-backed securities to keep long term interest rates and mortgage rates low. Several signals from the Fed pointing to an end of these purchases as early as September spooked the markets and sent long term bond yields soaring. 10 year Treasury yields soared almost 100 basis points during this time, from 1.66 percent to 2.60 percent yesterday.

Relentless Rise in Interest Rates

To calm the markets and stop the relentless rise in interest rates, last month Ben Bernanke raised the prospect of a lower threshold for the jobless rate to start increasing the fed funds rate. The president of the Minneapolis Fed, Narayana Kocherlakota, has been touting lowering the jobless rate number to 5.5 percent for over a year now.

If the number is lowered to 6.0 percent or 5.5 percent before the Fed will increase the fed funds rate, it means deposit rates will also be at current levels past mid-2015. The past year, the jobless rate has fallen on average about a tenth  of a percent each month. If the rate continues to fall at that pace, it could be mid-2016 before interest rates will increase.

Current Money Market Rates - Savings Rates

Average money market rates and savings rates are in the single digits this week. The current national average money market rate is at 0.09 percent and the average savings account rate is at 0.09 percent. The best savings rate in our database this week is from The Palladian PrivateBank at 1.00 percent. The best money market rate in our database of rates is lower at 0.86 percent from EverBank.

Top Money Market Rates

  1. EverBank 0.86% APY

  2. Mutual of Omaha Bank 0.85% APY

  3. GE Capital Retail Bank 0.85% APY

  4. Ally Bank 0.84% APY

  5. First Internet Bank of Indiana 0.80% APY

Top Savings Rates

  1. The Palladian PrivateBank 1.00% APY

  2. Barclays Bank 0.90% APY

  3. FNBO Direct 0.85% APY

  4. Colorado Federal Savings Bank 0.85%

  5. Ally Bank 0.84% APY

You can always find a list of the best interest rates available at RatesORama.com.

Author: Brian McKay
July 15th, 2013