If you’ve been watching the financial news lately, you’ll know that it’s been dominated by this topic: “When is the Fed going to raise rates?” So, I figured I’d throw my two cents in and let you know what I think is happening now and what will happen in the future.
The Federal Reserve (“the Fed”) is the central bank of the United States. It was created in 1918 to provide a “safer, more flexible, and more stable monetary and financial system.”* Through monetary policy, the Fed has a dual mandate to keep inflation stable and to achieve maximum employment. However, since the Great Recession, the Fed has seemingly been tasked with spurring on the economy and bolstering the stock market. This is largely due to the gridlock in Washington and the inability of our lawmakers to create any meaningful fiscal policy. But, I digress….
The Fed’s main tool in monetary policy is the Fed Funds rate. The Fed Funds rate is the rate at which banks lend money to each other on an overnight basis. This rate creates a baseline for all other short term rates (including savings accounts and CD’s). Currently, the Fed is holding this rate at 0-0.25%, which is why your savings account rate is so low.
But all that’s going to change! Or, is it…? At the beginning of this year, most analysts were predicting that the Fed would start raising the Fed Funds rate in June. This is clearly not going to happen. The main reason…