What We Heard Today from the Fed
As was overwhelmingly expected for weeks, the Federal Reserve announced this afternoon that it is maintaining the federal funds rate at its current level.
This is the second meeting in a row ending with a rate hold, after most recently raising the benchmark rate on July 26.
Since March 2022, the Fed has implemented 11 rate increases in its fight to tame decades-high inflation. Its rate-hike campaign has raised the fed funds rate by a cumulative 5.25%, in addition to its highest level since 2001.
But like previous announcements, today's statement indicated that until inflation has come down to the Fed's target of 2%—and the committee feels it will reliably stay near that level—an additional rate increase is still on the table for future meetings.
The Fed's next two rate decisions will be announced Dec. 13 and Jan. 31.
Federal Reserve Board. "Federal Open Market Committee Meeting Calendar."
Today's written statement from the Fed indicates that, in deciding future rate moves, the committee will "take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
In simpler words, the Fed will watch to see what results are yet to be delivered from past hikes, since it can take a while for the full effect of each increase to take effect, and it will also closely monitor new economic data as it becomes available between now and the next meeting.
During his following press conference, Federal Reserve Chair Jerome Powell stated: "Inflation has moderated since the middle of last year and readings over the summer were quite favorable. But a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal."
Powell also reiterated what he has indicated in many past press conferences, that today's announcement is only a decision for today. “We haven't made any decisions about future meetings,” Powell said. “We're going meeting by meeting."
How the Fed Affects the Best CD Rates
The Federal Reserve's decisions about the federal funds rate have a direct impact on the interest that banks and credit unions are willing to pay for savings, money market, and certificate of deposit (CD) accounts. When banks and credit unions expect the Fed to raise the fed funds rate, many will raise their consumer deposit rates as well. The converse is true when they expect the Fed to lower rates.
In a rate-hold situation like we have now, it becomes a "wait and see" game—watching for clues from the economy and comments from Fed members on whether there will be any more rate hikes on the horizon, or if instead the current hold becomes a permanent one for this campaign.
The Fed won't make another rate decision for six weeks, so it's too soon to reliably predict its next move—and therefore what we can expect for CD rates. As long as it seems likely the federal funds rate will hold steady, banks and credit unions are expected to keep CD rates roughly in range of where they are now.
But if at some point it looks like the Fed is poised to make another increase, some banks and credit unions will begin raising savings and CD rates to stay competitive. And typically, some of them will make these increases ahead of the actual Fed announcement.
The best CD rates in the nation are currently topped by a 6.50% APY offer on an 8-month term, with runner-up rates of 6.18% and 6.00% APY from a handful of 12–17 month CDs. Still another dozen or so nationwide CDs are paying 5.75% or better. Time will tell if the Fed implements another rate hike that could push these record rates to new historic highs.
Advice for CD Shoppers
Though it's unknown if CD rates will climb higher still, possibly nudged by another Fed rate increase, we do know that current rates are already stellar. You can earn at least 5.00% APY even in the long 5-year term, while CDs of up to 2 years are paying leading rates of 5.60% to 6.50% APY.
That means it's hard to go wrong with opening a top-paying CD right now. Sure, you could miss out on a slightly better rate in the future. But it's also possible that won't happen, and today's CD rates are already at their peak. Any top-paying CD can also come off the market at any time, erasing your opportunity to lock in its record rate.
In addition, even if the Fed does make another increase, it's widely assumed it will be just one more 0.25% increase. With the federal funds rate already up 5.25% since last year, another quarter percentage point is a minor uptick. Any increases in the top CD rates are therefore expected to be just as incremental as well.
So instead of trying to time the perfect CD peak—and potentially losing out if rates decline before you expect it—it's smart to figure out now what your ideal CD duration is so you can shop around for the current best rates in that term. You have an abundance of historically high-paying options at your disposal.