Bank Deals Blog: Fed / Banking News

It has been almost one year since the Fed slashed its benchmark rate to near zero. This new zero rate period has been much worse for deposit rates than the first year of the previous zero rate period. For example, one year into the last zero rate period in December 2009, Discover Bank’s savings account APY was 1.75%, its 1-year CD APY was 1.85%, and its 5-year CD APY was 3.30%. Almost one year into this new zero rate period, Discover Bank’s savings account APY is 0.40%, its 1-year CD...

As the economy recovers from the pandemic, there is concern that inflation could rise to worrisome levels. However, that worry isn’t shared by the Fed. Fed Chair Jerome Powell downplayed the risks of high inflation after the January FOMC meeting:

This week, Fed Chair Powell is giving the Fed’s Semiannual Monetary Policy Report to the Congress. In his opening remarks, Fed Chair Powell continued to downplay the risk of troubling high inflation for the near term:

Not everyone is in agreement with the Fed Chair on inflation concerns. Inflation that measures consumer...

Last Wednesday, Fed Chair Jerome Powell gave a webcast speech at the Economic Club of New York which focused on the labor market. Not only did it reinforce the Fed’s commitment to zero rates, the speech shows the Fed Chair’s perception of how bad the labor market has been hit by the pandemic. This excerpt highlights this perception:

The speech also reinforced the Fed’s new inflation framework in which the Fed wants inflation to rise to higher levels than it has in the past before it will raise rates. Based on...

The January jobs report that was released last Friday mostly confirmed that the winter surge of COVID cases did weigh on the job market. The January jobs gains were just under expectations and there were downward revisions to the job numbers in November and December. The unemployment rate dropped, but this was due primarily to workers dropping out of the labor force.

On the positive side, vaccination distributions are progressing, and there are growing expectations of a strong recovery later this year as economist Tim Duy described in his latest Fed...

Last week’s FOMC meeting went as expected with no policy changes. Fed Chair Jerome Powell’s press conference after the meeting did reinforce the high likelihood that the Fed’s policy will remain highly accommodative (with no rate hikes and with the current asset purchase pace) for a very long time.

Before the FOMC meeting, there had been talk that the Fed may start thinking about tapering its asset purchases in the second half of the year. Based on what the Fed Chair said at the press conference, this seems optimistic. According to...

The FOMC meeting begins today. The meeting will end on Wednesday with the release of the FOMC statement scheduled for 2:00pm. After the statement release, a press conference by Fed Chair Jerome Powell will take place at 2:30pm. No policy changes are expected from this meeting. Most of the news should come from the press conference.

At the press conference, reporters will likely ask Fed Chair Powell about recent comments from regional Fed presidents suggesting that the Fed could start tapering its bond purchases by later this year. Although Powell will...

The first Fed meeting of 2021 is scheduled to take place next week. No policy changes are expected. There has been talk by a couple of Fed officials that the Fed could start tapering its bond purchases late this year if the economy does have a strong recovery.

This Fed taper talk along with the increased odds that the new Congress will pass more fiscal stimulus has contributed to rising long-dated Treasury yields. In 2013 when Fed Chair Ben Bernanke hinted that the Fed was thinking about tapering, the markets were...

Any improvement in deposit rates for 2021 will likely require a strong economic recovery. The December unemployment report that was released Friday didn’t seem to offer much good news on the economy. The Labor Department reported a job loss of 140k which was below the 50k gain that economists were expecting. It was the first month with job losses since last April.

Even though the jobs report appeared gloomy, it didn’t upset the market as described in this CNBC article:

In fact, there are reasons to be optimistic as Economist Tim Duy...

Happy New Year! I would like to be optimistic to start the new year, but for savers, I’m afraid 2021 will likely be disappointing. The best we can hope for is that deposit rates have reached a bottom. As I describe below, there are signs that point to this. It’s possible that long-term CD rates may have small gains in late 2021 with a few CD specials that near 2%. Any good news on deposit rates will heavily depend on a strengthening economy, and that of course depends on a...

Note regarding the CD rates summary: Since this is a holiday week, the CD rates summary will be delayed until next week (Tuesday, January 5th). This will give me time to include new-month rate changes into the CD summary.

I and my team at DepositAccounts wish you and your family a happy, healthy and prosperous New Year.

This WSJ article provides some hope to savers by saying that long-term Treasury yields “seem poised to move up in the first half of 2021.” The low Treasury yields that we’ve seen in 2020 may...