THE BLOG
06/23/2010 07:41 pm ET Updated May 25, 2011

Bank Rates Have Little to Hope for From Fed Meeting

No organization gets more attention for doing nothing than the Fed.

The fact that the Federal Reserve concludes a two-day meeting today has been widely reported -- as has the fact that the Fed is expected to leave its bank-lending rate near zero.

Not only is the Fed expected to do nothing today, but speculation centers on whether it will renew its pledge to continue to do nothing with interest rates for the foreseeable future.

Against this slightly absurd backdrop, one has to ask a serious question: Has the Fed painted itself into a corner with these near-zero interest rates?

The dilemma is that these low rates have done little to stimulate the economy, and yet raising them would be disruptive to the financial markets. So the Fed has pretty much used up all its bullets, yet employment has barely budged, and experts hold their breaths as they wait to see if the housing market can survive the expiration of the home-buyer tax credit.

Meanwhile, the Fed can only hope that inflation stays benign, because that would give it a real dilemma between maintaining the illusion of a stimulative fiscal policy or raising rates to head off inflation. With large emerging market economies heating up, a dose of commodity inflation could make this dilemma a reality.

Meanwhile, another factor continues to get little mention -- the fact that near-zero savings account rates, money-market rates and CD rates diminish the income of savers. Here's a thought -- since low-interest rates aren't stimulating borrowing, perhaps putting more money in the pockets of savers via higher interest rates would stimulate spending.

The original post can be found at MoneyRates.com:
Bank Rates Have Little to Hope For From Fed Meeting