- As expected, the U.S. Federal Reserve kept interest rates steady this week, but offered a notably upbeat assessment of the economy and signaled that another rate hike is likely at its September meeting.1
- After holding rates near zero for seven years, the Fed has raised rates seven times since 2015 and looks increasingly likely to raise short-term interest rates at least once more in 2018.2 This week, Fed funds futures indicated a 100% chance of a rate increase in September and a 64% chance of an additional rate hike by year-end.3
- However, the rise in the Fed funds target rate seen over the past two years has yet to translate to a substantive pickup in the rate investors can achieve on either their cash deposits or certificates of deposit.
- At an average rate of 0.13% for money market accounts and 0.41% for the average 12-month CD, bank deposit rates have barely budged in recent years and, with inflation currently sitting above 2%, continue to depreciate in value.4
- As the chart suggests, even further rises in short-term interest rates may not translate into a substantial pickup on deposit rates any time soon.
1 U.S. Federal Reserve, https://bit.ly/2OBfdWS.
2 Federal Reserve Bank of St. Louis, https://bit.ly/2GcSM69.
3 Bloomberg, based on CME data.
4 Federal Reserve Bank of St. Louis, https://bit.ly/2Mf901k and https://bit.ly/2AxlQ9N.
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