Bad news for savers coming out of Washington: the Federal Open Market Committee met on Tuesday and decided against doing anything to change their monetary policy. The FOMC, the wing of the Federal Reserve tasked with making monetary policy decisions, cited a “moderate pace of economic growth over coming quarters,” and decided against taking any further actions in 2011 to stimulate the economy.
The Committee said nothing about another round of quantitative easing — the process of “printing” electronic money to purchase securities from investment banks — something investors have been hoping for. Quantitative easing, though, is a bad deal for savers: part of the goal is to push your money out of savings accounts. This is central to the goals of stimulus through monetary policy.
The Federal Reserve has already pushed interest rates as low as is possible in an effort to stimulate the economy in recent years. Quantitative easing would push long-term rates down, and disincentivize people from keeping their money in savings. Instead, they would hopefully be pushed into moving their cash to more potentially productive places: purchases, investments, etc. (Note: this is not the sole goal of quantitative easing, but one of the effects).
Your low savings and CD account APY are a direct result of federal monetary policy — they need you to stimulate the economy right now, not save! But just because the Fed will not start QE3 in 2011, it does not necessarily mean that savers can expect better rates any time soon.
The Wall Street Journal points out that, while the Fed has promised to raise the rates on short-term debt in mid-2013, the markets disagree. The WSJ writes that “futures markets suggest investors don’t expect the first rate increase to occur until late 2013 or early 2014.”
That means that savings interest rates will remain low — maybe painfully low — for years to come. Federal monetary policy’s main goal is to stimulate the economy, not help you get a better interest rate. Fortunately, we thought up a few better places to park your cash and wait out these low rates.