The Federal Reserve, headed by Ben Bernanke, intends to hold interest rates… (Jim Watson / AFP/Getty Images )
The Federal Reserve has pledged to keep interest rates at near rock-bottom levels for another couple of years.
That’s a shift from the central bank’s previous plan to lock in rates near zero through mid-2013. The change should help reassure consumers that they can continue to borrow cheaply, extending an era of free money designed to stimulate the still limping economy.
Investors sure liked it: Major stock indexes catapulted higher after the announcement. The Dow Jones industrial average and Standard & Poor’s 500 index erased earlier losses and were most recently up about half of a percent.
Traders on Wall Street have been holding out for the Fed to lay the groundwork for another round of bond buying, also known as quantitative easing, to bolster the economy. This isn’t anywhere near QE1 or QE2, as it's nicknamed on the Street -- but, it's something. “This is QE 2.5,” Pimco’s Bill Gross told CNBC television.
But here comes the rub for many Americans who sidestep the stock markets in favor of safer investments.
The Fed’s latest maneuvering to resuscitate the ailing economy has already sent yields on government bonds -- already hovering at generational lows -- even lower. The yield on the benchmark 10-year sank to a measly 1.96% on Wednesday. Meanwhile, the amount of money you’re making on money markets or savings accounts continues to be microscopic. The average one-year CD yields is just 0.67% -- down from 2.4% four years ago and 3.75% in 2007.
Forget the old adage about a penny saved being a penny earned. Borrowers win and savers lose in this environment.
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