Why Bank Customers Keep Suffering: Low GDP Means Fed Stays Course

May 30, 2014

New York (May 30)  The Commerce Department is out with revised gross domestic product numbers for the first quarter of 2014, and the news isn't good.

Officially, the nation's GDP figure -- the most commonly used barometer to measure the country's financial health by economists -- fell into negative territory, at negative 1%.

That's down from the original 0.1% reading the department reported a month ago and is either a hiccup on the road to recovery or a serious harbinger of troubling economic turmoil ahead.

Either way there was trouble across the board for the economy for the first quarter in the public and private sector, the agency said in a statement Thursday.

"The decrease in real GDP in the first quarter primarily reflected negative contributions from private inventory investment, exports, nonresidential fixed investment, state and local government spending and residential fixed investment that were partly offset by a positive contribution from personal consumption expenditures. Imports, which are a subtraction in the calculation of GDP, increased," the Commerce Department reported.

The news was softened somewhat by estimates the economy will still finish the year with positive growth, at 2.6%.

But the revised, downward number does come with a price tag for bank savings customers.

With the economy down, the Federal Reserve will likely keep interest rates low, to spur lending and generate momentum in the economy. That will keep bank rates down.

The Federal Reserve has pretty much guaranteed that, as it continues to keep its policy of low rates in place.

"Economic headwinds seem likely to persist for several more years," said Federal Reserve Bank of New York President Dudley William in a speech to the New York Association of Business Economics this month.

Dudley, one of the chief architects of the Fed's interest rate policy, says the housing market faces "several significant headwinds" and that U.S. households remain "scarred" from the Great Recession.

"With the fundamentals of the economy improving and fiscal drag abating, I expect the economy to get back on to a roughly 3% growth trajectory over the remainder of this year, with some further strengthening likely in 2015," Dudley said. "But there remains considerable uncertainty about that forecast and, given the persistent over-optimism about the growth outlook by Federal Reserve officials and others in recent years, we shouldn't count our chickens before they hatch."

Add it all up and bank consumers can expect to see certificate of deposit and checking account rates stay at historic lows. According to the BankingMyWay weekly bank rate index, bank interest rates averaged 0.046% last week, while one-year CD's are at 0.195%, not even enough to keep up with the rate of inflation.

With the economy in negative territory, for one quarter at least, those rates will continue to remain weak, and leave bank savers looking for relief that just isn't coming anytime soon.

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