The Fed’s determined to hold interest rates down this summer – but will it succeed?

Red dollar sign on a crack

The Federal Reserve is still determined to hold interest rates at record lows – and continue abusing savers in the process.

But a couple of things could conspire against the powerful financiers that run the government-controlled bank and push interest rates up sooner than they would like.

We know the Fed wants to keep interest rates low until at least late fall or early winter because it told us so last week.

The rate-setting Federal Open Market Committee met in Washington and concluded that the economy is not recovering as quickly as it had anticipated just a few months ago.

The unemployment rate is stuck around 9%. The housing market is still struggling with millions of foreclosures. The financial industry continues to be preoccupied with bad loans – not making new ones.

As a result, the nation’s GDP only grew at a 1.9% annualized rate during the first three months of the year. That’s about half as much as the production of goods and services should grow during a robust recovery.

As a result, the committee released a statement reiterating its determination to hold short-term interest rates at their record lows for “an extended period.”

When questioned during his post-meeting press conference just how long that might be, Fed Chairman Ben Bernanke said: “We believe we’re at least two or three meetings away from taking any action . . . and I emphasize at least.”

That’s what savers, who haven’t been able to earn a reasonable return on their certificates of deposit and other interest-bearing accounts for coming on three years, are accustomed to hearing.

The Fed will continue its policy off propping up the economy, and rescuing the nation’s reckless and unrepentant banks, on our banks.

On the same day the Fed was meeting, was taking its weekly survey of major banks.

We found the average return on five of the six popular certificates of deposits we track – 3-, 6-, 12-, 24- and 26-month CDs -- hit record lows.

The average 36-month CD rate fell below 1% for the first time ever, dropping to 0.99% APY.

There are only four more Fed meetings this year – Aug. 9, Sept. 20, Nov. 1-2, and Dec. 13.

Given what we heard this week, it seems we can’t expect the Fed to raise interest rates before November or December. If then.

But two things outside the Fed’s control could conspire to push rates up before then.

The first is the end of what’s been dubbed Quantitative Easing II (or QE II for short.)

Last November the Fed launched a campaign to buy $600 billion worth of long-term Treasury bonds.

Flooding the market with money had the effect of bidding up prices and pushing down the interest rates investors could earn on those bonds.

No one knows what will happen to Treasury prices when the Fed is no longer a major buyer.

Some economists think bond prices pushed artificially high by QE II will simply have to decline, pushing interest rates up in the process.

Also keep a keen eye on the currently stalled negotiations over the federal government’s debt ceiling.

If Congress doesn’t raise the debt ceiling by the time it’s reached in early August, the United States government would not be able to borrow the additional money it needs to pay its bills.

A huge debate is raging over what kind of financial catastrophe might come of that, and how and when such a meltdown might unfold.

But if political bickering plunges the federal government into a debt crisis later this summer, it’s easy to imagine that Treasury prices will fall and interest rates will rise.

If interest rates on government bonds increase enough to draw significant amounts of money out of the banks, then the banks will have to raise the rock bottom rates they are paying as well.

It will be interesting to see if forces bigger than the Fed will undermine its determined efforts to divert the fair and reasonable interest we should be earning on our CDs and savings accounts into bank profits.

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