Federal Reserve President Calling for Higher Interest Rates Sooner Than Later
A stronger than expected employment report for the month of June will add pressure to the Federal Reserve to increase the fed funds rate sooner in 2015. More jobs were created in the month of June and the unemployment rate fell to 6.1 percent, the lowest point in over 5 years. The general consensus has been the Fed will increase the fed funds rate sometime in the second or third quarter of 2015, but it might happen sooner.
Federal Reserve President James Bullard recently commented that the increase in the fed funds rate should happen sooner than later. Bullard said the "U.S. unemployment rate will fall below 6 percent and inflation will likely rise to 2 percent later this year, putting the economy closer to “normal” sooner than most people realize."
The current fed funds rate is near zero percent and has been at that point for over 5 years now. This Fed policy has sent deposit rates down to record lows. Average savings rates are at 0.06 percent and average money market rates are at 0.08 percent. The best savings rates at 0.95 percent and the best money market rates are at 1.01 percent.
When the Fed increases the federal funds rate banks will increase deposit rates sooner after. Some banks have already increased savings rates, money market rates, and CD rates in anticipation of a higher fed funds rate. The increases haven't been small but at least rates are headed higher. When the fed funds rate moves higher that is when bigger increases in deposit rates will take place.
The Fed's forecasts for the fed funds rate is as high as 3.00 percent by the end of 2015. A 3 percent fed funds rate will force banks to increase savings rates and money market rates to the 3.50 percent to 4.00 percent range. 1 year CD rates would probably be increased to over 4.00 percent. Rates we haven't seen for more than 6 years now.
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