Have you ever wished a party would last forever? The Federal Reserve may eventually pull the plug on its free money festivities, but at least for now, the Fed has given the all-clear to keep on borrowing -- and some companies and their investors couldn't be happier.
Pass the punch bowl
Yesterday, the Fed made its regular statement on interest rate and monetary policy. The bombshell in the announcement came from a change of two words, as the central bank projected its "exceptionally low levels" of interest rates through late 2014, much longer than the previous mid-2013 estimate.
Even more interesting was an unprecedented look at the individual members of the Fed's Open Market Committee and their expectations for interest rates over the next several years. Out of 17 members, 14 believe that the Fed-funds target rate will remain at its current level of 0% to 0.25% through the end of this year, with the three holdouts calling for rates between 0.5% and 1%. Next year, six members see rates rising, with the highest estimates at 2%. And by 2014, only six see the target unchanged -- but the majority see rates at 1% or less.
What that means is that barring an extremely strong economic recovery or some other unexpected event, rates are going to stay low for a good long time. That obviously has a big impact on investors, and there are both pros and cons to it.
The obvious winners are companies that directly bet on short-term rates staying lower than longer-term ones. Annaly Capital
In addition, stocks that profit from skepticism about the fiscal discipline of governments rocketed higher. Low rates encourage more borrowing, and the U.S. government has had no shortage of spending beyond its means lately. In response, various commodities-related stocks -- notably gold and silver hybrid Central Fund of Canada
Squarely on the other side of this equation are savers. Already, savers have taken a huge double-hit over the past several years, as income from bonds, bank CDs, and other income-focused investments has nosedived -- in the immediate aftermath of losses on the stock side of their portfolios from the market meltdown during the financial crisis.
That in turn has pushed investors into higher-yielding investments. Dividend stocks have been a big winner, especially as the average dividend yield for S&P 500 companies has lingered above the yield on the 10-year Treasury note for a long time. Yet for those who see stocks as too risky, another haven has been corporate bonds. That's proven to be a win for big issuing companies. For instance, Ford
What to do
For those who still have a long time horizon ahead of them, today's move from the Fed should provide more encouragement to get money into the stock market. It's already been painful to stay in cash, and the prospect of near-zero rates lasting for years may be too much even for disciplined savers.
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Fool contributor Dan Caplinger isn't a big fan of the Fed's move, but he can roll with the punches. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Ford, Annaly Capital, and Chimera Investment. Motley Fool newsletter services have recommended buying shares of Annaly Capital and Ford, as well as creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy loves you.