The Federal Reserve has finally publicly announced what has been rumored for some time: that they will be making their rate forecasts public in the future. To make things slightly more temporally confusing, this decision was made formally at a Federal Open Markets Committee meeting on December 13, 2011, which was only just released online on Tuesday, and we will not get any forecasts until later this month. Make sense?
According to the minutes of the meeting, the members of the FOMC decided that they would include their projections of the Federal Reserve Bank’s target interest rates in their Summary of Economic Projections (SEP), which is released quarterly. Up until now this information was not included in the SEP, though other economic indicators were.
The Fed has kept the funds rate at near zero during the recession, and has indicated that they do not plan on raising the rate until 2013, though futures markets indicate that investors think it will take longer than that. We will have an answer to all this soon, or something like it, as the first SEP containing this data will be released later this month, after the FOMC meets again on the 24th and 25th.
“Specifically, the SEP will include information about participants’ projections of the appropriate level of the target federal funds rate in the fourth quarter of the current year and the next few calendar years,” read the minutes. These predictions will be accompanied by descriptions of the “key factors underlying [the] assessments.”
According to the minutes, the members of the Committee agreed that making their predictions for the Fed’s target rate would “be helpful in enhancing the transparency and accountability of monetary policy and in facilitating well-informed decision making by households and businesses,” and would therefore be in line with the Fed’s larger goal of maximum employment and economic growth.
What will this mean for savers? We made some predictions back in December. It could potentially mean that more banks will have to make better offers on long term CDs, but only if the Fed actually announces that they will be raising rates in the coming years. If the Fed makes public that they’re keeping rates low for the foreseeable future, well, savers won’t soon see any good deals.
Read the FOMC’s minutes here, if that’s your thing.