The Direction of CD Rates is Higher for 2017

Banks and credit unions are slowly increasing CD rates. The increases are still small but with inflation picking up steam and bond yields soaring higher, that may change. Another catalyst for higher CD rates is the Federal Open Market Committee meeting.

The FOMC is scheduled to meet in mid-December and is widely expected to increase the fed funds rate. The CME Group's FedWatch Tool now has a 95 percent chance of a fed funds rate increase during the December meeting. The current rate is in a targeted range of 0.25 percent to 0.50 percent. A December increase will put the rate between 0.50 percent to 0.75 percent.

A higher fed funds rate will entice banks and credit unions to increase their deposit rates. Not all financial institutions will increase rates but we expect banks that have a need for deposits to increase rates. If there is a 25 basis fed funds rate increase, the best 1 year CD rates available will also be increased about 25 basis points.

The highest 1 year CD rates are around 1.30 percent. A 0.25 percent increase would put the highest 1 year CD rates around 1.50 percent. It's been years since the last time we saw the top 1 year CD rates around 1.50 percent.

Looking towards 2017, the FOMC has eight scheduled meetings. At this time, the FOMC is expected to increase the fed funds rate once or twice during 2017. Of course, a lot can change in the coming months, especially since there is talk of a trillion dollar investment in infrastructure, which would put upward pressure on bond yields and inflation.

Author: Brian McKay
November 27th, 2016