Federal Reserve, the Economy and CD Rate Forecast - Sep 13, 2022

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With the next Fed meeting just a week away, I thought this would be a good time for another Fed summary with a preview of what to expect. The two-day meeting is scheduled to start on the 20th with the statement released at 2:00pm EDT on Wednesday the 21st. In addition, the Fed will release an update to its Summary of Economic Projections (SEP). At 2:30pm, Fed Chair Powell’s post-meeting press conference will take place.

Before today, expectations were high that the Fed would hike 75 bps. With the August CPI report this morning showing a month-over-month core CPI increase of 0.6%, twice the level expected, there are now substantial odds of a 100-bp rate hike. The odds of at least a 75-bp rate hike are now 100%, according to the fed funds futures via the CME FedWatch Tool.

The most likely path for the target federal funds rate for the next three Fed meetings is 75 bps, 50 bps and 50 bps. That would increase the target federal funds rate by 175 bps to 4.00%-4.25%. There are substantial odds that it could even be higher.

The rate path for 2023 is much more uncertain. Expectations are for an extended pause by the Fed after maybe one or two 25-bp rate hikes in the first half of 2023. However, if inflation continues to remain stubbornly high, more 2023 Fed rate hikes are possible, which could take the target federal funds rate to around 5%, a level we haven’t seen since 2007.

There is the possibility that the pause could be short if a major economic slowdown occurs with a big spike in the unemployment rate. The Fed appears to be committed to keeping rates high until they’re confident that elevated inflation is no longer a serious risk. Based on how inflation has been this year, this could keep rates high through 2023. However, I think it’s questionable that the Fed can maintain this commitment if we see a large rise in the unemployment rate in 2023.

For savers, it seems like it makes the most sense to stick with online savings accounts until signs start pointing to the Fed transitioning to a pause. At that point, we may see 4% and maybe even 5% long-term CDs. That would be the time to move money from savings accounts to CDs. I suggest not being too confident with the current inflation and rate expectations. Inflation has been higher than expected this year. Previous years it had been lower than expected. If a recession comes quickly, inflation expectations may drop hard and that could quickly impact long-term rates. The 5% long-term CDs that we hope for may once again fail to materialize.

Treasury Yields

Treasury yields of all durations have had substantial increases in September. The 6-month and 1-year T-bills have had the largest yield gains, with the yields of both rising 44 bps. The 1-year yield is now just shy of 4% (3.92%), and the 6-month isn’t far behind (3.75%). The 3-month yield is now substantially above 3% (3.28%).

The yield curve has become more inverted. The 6-month yield now exceeds the 10-year yield by 33 bps. Two weeks ago, the 6-month lead was 20 bps. The 1-year yield now exceeds the 10-year yield by 50 bps. Two weeks ago, this lead was 37 bps.

The 10y-3m spread (the difference between the 10-year and 3-month yield) continues to be positive. The 10-year exceeds the 3-month yield by 14 bps. This is the same difference that existed two weeks ago. Some economists put more weight on a negative 10y-3m spread than the 10y-2y spread in predicting future recessions.

As the yield curve becomes more inverted, this not only suggests that a recession is nearing, it also can cause banks to cut back on their loans which will reduce the banks’ need for deposits. This is described in this economy blog post from the Federal Reserve Bank of St. Louis:

Normally, banks can profit on the spread between the yields on longer-term assets and the interest they pay on deposits and other short-term liabilities. However, bank profits get squeezed when short-term interest rates rise relative to the yields on long-term assets. This can lead banks to cut back on their lending, which, in turn, can put the brakes on economic activity.

The large rise of T-bill yields does provide a good opportunity for savers to boost their cash yield. Treasury bills (durations of from three months to one year) do offer a yield advantage over short-term CDs. At the market close today, the 3-, 6- and 12-month T-bill yields were 3.28%, 3.75% and 3.92%, respectively, These are higher than any short-term direct CD rates with comparable maturities (with the exception of the 6- and 9-month CD Specials at Sun East FCU).

Treasury notes (durations from two to ten years) began August with yields lower than the yields of the top CDs with similar maturities. Recent gains of T-note yields have them nearing or exceeding the yields of top CDs. The 2-, 3- and 5-year T-note yields were 3.75%, 3.75% and 3.58%, respectively. The 2- and 3-year Treasury yields are higher than any direct CD yields of comparable maturity, while the 5-year Treasury yield is just under the top 5-year CD yields.

Savers who are considering buying T-bills and would like to learn how best to buy them, this TipsWatch post offers many useful details on buying them at TreasuryDirect, and this The Finance Buff post offers many useful details on buying them from Fidelity, Vanguard or from Charles Schwab.

Odds of Fed Rate Hikes

As a consequence of today’s CPI report, the odds are now sizable of a 100-bp rate hike at next week’s Fed meeting. In just one day, the odds of a 100-bp rate hike have increased from zero to 33.0%. If there isn’t a 100-bp rate hike next week, then the rate hike will be 75 bps. The odds of a smaller rate hike (50 bps or smaller) have fallen to zero.

After the remaining three Fed meetings this year, the highest odds are for a total rate increase of 175 bps, moving the target federal funds rate to 4.00%-4.25%. The likely rate path for the next three meetings for this to happen is 75-50-50. The odds are now substantial that rate hikes may total 200 bps with a rate path of 100-50-50 or 75-75-50.

By the July 26, 2023 meeting, the odds suggest that there will have been no rate cuts in 2023. The highest odds are for the target federal funds rate to hold at 4.00%-4.25%. Not far behind are the odds that the rate will hold at 4.25%-4.50%.

These federal funds rate odds are based on the CME FedWatch tool. The CME FedWatch tool lists implied probabilities of future target federal funds rate hikes based on the Fed Funds futures market.

The following numbers are based on Daily Treasury Yield Curve Rates and the CME Group FedWatch.

Treasury Yields (Close of 9/13/2022):

  • 1-month: 2.55%, up 12 bps from 2.43% 2 wks ago (0.06% a year ago)
  • 3-month: 3.28%, up 31 bps from 2.97% 2 wks ago (0.06% a year ago)
  • 6-month: 3.75% up 44 bps from 3.31% 2 wks ago (0.06% a year ago)
  • 1-year: 3.92%, up 44 bps from 3.48% 2 wks ago (0.07% a year ago)
  • 2--year: 3.75%, up 29 bps from 3.46% 2 wks ago (0.21% a year ago)
  • 5--year: 3.58%, up 31 bps from 3.27% 2 wks ago (0.81% a year ago)
  • 10-year: 3.42%, up 31 bps from 3.11% 2 wks ago (1.33% a year ago)
  • 30-year: 3.51%, up 28 bps from 3.23% 2 wks ago (1.91% a year ago)

Fed funds futures' probabilities of future rate changes by (@ 7:50pm EDT 9/13/2022)

Sep 21, 2022 - up by at least:

  • 75 bps: 100.0%, up from 73.0% last week
  • 100bps: 33.0%, up from 0.0% last week

Nov 2, 2022 - up by at least:

  • 100 bps: 100.0%, same as last week
  • 125 bps: 100.0%, up from 73.3% last week
  • 150 bps: 53.5%, up from 0.8% last week
  • 175 bps: 10.1%, up from 0.0% last week

Dec 14, 2022 - up by at least:

  • 150 bps: 100.0%, up from 74.6% last week
  • 175 bps: 85.7%, up from 4.3% last week
  • 200 bps: 40.2%, up from 0.0% last week
  • 225 bps: 7.0%, up from 0.0% last week

Jul 26, 2023 - up by at least:

  • 125 bps: 99.2%, up from 94.1% last month
  • 150 bps: 93.0%, up from 72.4% last month
  • 175 bps: 73.5%, up from 33.9% last month
  • 200 bps: 42.4%, up from 6.9% last month
  • 225 bps: 15.7%, up from 0.3% last month
  • 250 bps: 3.3%, up from 0.0% last month

Deposit Rate Changes and Forecasts

CD Rates

In the last two weeks, top long-term CD rates remain under 4%. The highest rate continues to be the 49-month CD Special at NASA FCU (3.85% APY), but it’s not much higher than their short-term CD Specials (15-month at 3.75% APY and 9-month at 3.55% APY). I had expected these rates to fall in September, but they’re still available.

One credit union is offering short-term CDs that have reached 4%. It’s Sun East FCU. They’re offering 6-month and 9-month CD Specials that earn 4.00% APY. Similar to the long-term 4% CDs that were offered by two credit unions in August, Sun East is having trouble with the high demand. Several readers have reported problems trying to apply for these CDs.

In general, top short-term CD rates are rising above 3%, and long-term CD rates are rising above 3.50%.

With its latest rate hike, USALLIANCE Financial Credit Union’s Special 18-month CD now has the highest 18-month rate (3.50% APY).

The recent rate hike at State Bank of Texas has moved the bank into first place for 1-year CDs (3.25% APY). Connexus Credit Union is now in second place (3.21% APY).

Major online banks continue to slowly hike their CD rates. Several have increased their 5-year CD yields to 3.25% and their 1-year yields to 2.70%. Synchrony continues to be on top with 3.50% APY 5-year CD.

Just like the top 5-year CD rates, the average online 5-year CD rates didn’t rise much in August. The average only increased 5 bps to 3.15%. It was the smallest monthly gain for 2022. The average online 1-year CD rate had a larger gain, but it was smaller than the monthly gains of the previous three months. The 1-year average increased 33.7 bps to 2.67%.

These averages are based on the 5-year Online CD Index and 1-year Online CD Index which are the average yields of ten online CD accounts from well-established online banks.

Since so many banks and credit unions are raising CD rates, I only included changes in the last week. In addition, I excluded several of them that increased rates to mediocre levels. I’m focusing mostly on rate increases that are noteworthy. Also, I’m only including one to three CD rate changes per institution to avoid an overload of data. All percentages listed below are APYs.

  • Crescent Bank (5y 3.35% → 3.60%, 2y 3.00% → 3.40%, 18m 2.80% → 3.10%)
  • Quorum FCU (30m 3.00% → 3.50%, 13m 2.50% → 3.00%)
  • Dept of Commerce FCU ($25k+ 5y 3.32% → 3.49%, 1y 2.52% → 3.13%)
  • USALLIANCE Financial CU (60m 0.80% $rarr; 3.40%, 18m 2.50% → 3.50%)
  • State Bank of Texas (1y 3.10% → 3.25%)
  • LendingClub Bank (3y 2.75% → 3.25%, 1y 2.01% → 3.00%)
  • Ivy Bank (3y 2.50% → 3.25%, 1y 1.85% → 3.00%)
  • PenFed CU (5y 3.20% → 3.25%, 2y 2.95% → 3.05%, 1y 2.30% → 2.75%)
  • Sallie Mae Bank (5y 3.05% → 3.25%, 1y 2.75% → 2.85%)
  • First Internet Bank (2y 2.94% → 3.20%, 1y 2.78% → 2.99%)
  • Banesco USA (18m 2.95% → 3.05%, 1y 2.85% → 3.00%)
  • Discover Bank (4y 3.05% → 3.15%, 1y 2.50% → 2.70%)
  • Barclays (4y 3.05% → 3.15%, 1y 2.50% → 2.70%)
  • Ally Bank (20m 2.70% → 2.85%, 1y 2.50% → 2.70%)
  • Marcus by Goldman Sachs (13m NP 1.75% → 1.95%)

I’ll have more discussion of the rate changes in my CD rate summary on Wednesday.

Savings, Checking and Money Market Rates

We now have a few online savings and money market yields surpassing 2.50%. Two banks have recently increased their rates to 2.61%. We also have a new rate leader. It’s actually from a credit union via the SaveBetter platform. At SaveBetter.com, SkyOne FCU is offering a money market deposit account that earns 2.75% APY with a minimum balance of only $1. If you’re a SkyOne member that has joined and opened accounts directly from SkyOne, you might not like the fact that SkyOne’s online savings account (Sky-High Savings) only earns 1% APY.

For the major online savings accounts, more have reached 2% in the last two weeks. These include Ally, Barclays and Discover. Synchrony Bank increased its yield to 2.05% when September began. Capital One and Marcus are lagging behind and remain under 2% after their recent rate hikes to 1.90% APY. The major online banks continue to lag as compared to their peak rates in early 2019. Like today, the target federal funds rate was 2.25%-2.50%. When you consider a big Fed rate hike will be occurring next week, it’s surprising that these major online savings accounts have still not reached their 2019 peaks.

As I mentioned in my last Fed summary, we may continue to see online savings account rates lagging the federal funds rate. That may occur if the economy does have a major slowdown, which reduces loan activity at banks while deposits grow as fearful investors move money out of stocks and into cash. That could put downward pressure on rates as the Fed rate hikes continue to put upward pressure on rates.

You can also see the lagging of rates of the major online banks in the average online savings account yield. In August, the average yield gained 44.5 bps to 1.81%. That was the largest monthly gain since the Index began about five years ago. Nevertheless, it didn’t match the Fed’s 75-bp rate hike. Consequently, the average remains way below the target federal funds rate (2.25%-2.50%).

Our Online Savings Account Index tracks the average rate of ten well-established online savings accounts.

Below are examples of important savings, checking and money market rate changes in the last week. As is the case with the CD rates, I’ve included only rate changes from the online savings accounts that DA readers would be most interested in. All percentages listed below are APYs.

  • SkyOne FCU MMDA via SaveBetter (2.20% → 2.75%)
  • UFB Direct Rewards Savings & MM (2.21% → 2.61%)
  • Brilliant Bank MM (2.25% → 2.61%)
  • Bask Bank Bask Interest Savings (2.20% → 2.53%)
  • USALLIANCE Financial CU High Dividend Savings (2.00% → 2.50%)
  • State Bank of Texas Jumbo MM (2.00% → 2.30%)
  • ZYNLO Bank More MM (1.75% → 2.25%)
  • Vio Bank Cornerstone MM (2.15% → 2.22%)
  • iGObanking MM (1.85% → 2.15%)
  • SmartyPig Savings (1.80% → 2.05%)
  • Ally Bank Online Savings (1.80% → 2.00%)
  • Discover Bank Online Savings (1.80% → 2.00%)
  • Barclays Online Savings (1.80% → 2.00%)
  • Northern Bank Direct MM (1.50% → 2.00%)
  • Western State Bank MM (0.75% → 2.00%)
  • EmigrantDirect Savings (1.40% → 2.00%)
  • DollarSavingsDirect Savings (1.40% → 2.00%)
  • Sallie Mae Bank MM (1.85% → 2.05%)
  • Quorum FCU HighQ Savings (1.50% → 2.00%)
  • Paramount Bank Interest Checking (1.50% → 2.00%)
  • First Internet Bank Money Market Savings (1.71% → 1.92%)
  • Marcus by Goldman Sachs Online Savings (1.70% → 1.90%)
  • Capital One 360 Performance Savings (1.75% → 1.90%)
  • PenFed CU Premium Online Savings (1.20% → 1.50%)
  • MySavingsDirect Savings (1.00% → 1.50%)

Economic and Deposit Rate Scenarios for 2022 and 2023

Based on the June Summary of Economic Projections (SEP) dot plot which shows the anticipated federal funds rates of each of the 18 FOMC members, I can summarize these into two scenarios of how rates evolve through 2023. I expect major changes in the dot plot when the Fed releases its new SEP following next week’s Fed meeting. Based on how inflation and rates are playing out, even the high scenario from the June SEP appears too low.

Note, the dot plot includes rates for 2024 and for the “longer run.” For my scenarios, I’ve decided to focus just on 2022 and 2023. In my opinion, there’s too much uncertainty for 2024 and future years.

My first scenario is based on the median forecasts of 12 of the FOMC members who were on the low side of rate hike forecasts. The second scenario is based on the median forecasts of five of the FOMC members who were on the high side of rate hike forecasts. The range of possible net rate hikes through 2023 is 325 to 425 bps. The low end of this range would result in a federal funds rate target of 325-350 bps by the end of 2023. The high end of this range would result in a federal funds rate target of 425-450 bps.

My two Fed rate hike scenarios through 2023:

  1. 2022: 300-325 bps of rate hikes, 2023 25-50 bps of rate hikes (2yr gain of 325-375 bps)
  2. 2022: 350-375 bps of rate hikes, 2023 25-50 bps of rate hikes (2yr gain of 375-425 bps)

These rate hike forecasts are about 75 bps higher than the March forecasts. It’s yet another upward revision of the federal funds rate. For the last year, there have been upward revisions of the federal funds rate forecasts for each new SEP.

How will online savings account rates increase?

Based on the 2015-2018 Fed rate hiking cycle, the top online savings account rates should remain near the upper range of the target federal funds rate. With the current upper range of 2.50%, we already have an online savings account with a rate above this (2.60% APY at TotalDirectBank).

Average savings account yields will likely be 25-50 bps lower. As I explained above, the average may remain more than 50 bps lower. Most of the major online savings accounts still have rates under 2.00%.

How will online CD rates increase?

This year, online CD rates have risen much faster than online savings account rates. The opposite will likely occur as the Fed transitions from rate hikes to rate cuts. Online CD rates will likely fall before online savings account rates.

Online CD rates have lagged Treasury yields as rates have risen. When Treasury yields start declining, online CD yields will likely follow with some lag. That may give savers time to lock in CDs with high rates, at least high relative to today.

It’s wise to remember that no one can predict future interest rates. So if you want to keep things simple, a CD ladder of long-term CDs is always a useful strategy for your safe money. If you’re worried about being locked into a low-rate CD if rates start rising, choose long-term CDs with early withdrawal penalties of no more than six months of interest.

CD Rate Trends

The above graph shows the rate trends of the average CD rates. These average rates are based on all the rate data that we have collected over the years. They include rates from both brick-and-mortar banks and credit unions, in addition to online banks. Since brick-and-mortar banks and credit unions greatly outnumber online banks, these averages can be considered brick-and-mortar bank averages.

This is an interactive graph. You can choose the term of the CDs (from 3 months to 5 years) and the look-back period (from 3 months to 5 years).

As you can see in the graph, average CD rates for all terms plunged in 2020. Rates fell at a slower pace in 2021. For most terms, CD rates bottomed out at the end of 2021. The 3- and 6-month CD rates bottomed out in January or February of 2022. Rates are now rising for all maturities. Even though rates are rising, they aren’t rising as fast as online CD rates.


Comments
Ken Tumin
  |     |   Comment #1
Please keep comments focused on the economy or deposit rates. Any political discussion should be short, directly connected to the economy and respectful.
Choice
  |     |   Comment #2
What's the difference between "...online savings account rates..." and "High Yield Savings accounts?" A difference w/o a distinction? Need a discussion of "High Yields..." since it has it's own heading/category at the top? Thanks
P_D
  |     |   Comment #3
"The major online banks continue to lag as compared to their peak rates in early 2019. Like today, the target federal funds rate was 2.25%-2.50%. When you consider a big Fed rate hike will be occurring next week, it’s surprising that these major online savings accounts have still not reached their 2019 peaks."

Mortgage applications just hit a 22 year low and falling fast.  There's no demand.
Matt83
  |     |   Comment #4
5 percent CDs next year are now a real possibility. A couple months ago I was thinking 4 percent would be tough to get to. It's entirely possible the Fed has to take FFR to 5 percent and hold. Fingers crossed. ?? I just hope they have the balls to do it.
MikeG62
  |     |   Comment #5
In my opinion (and at the present time), CD rates are simply not a compelling alternative given yields on comparable term Treasuries.

Not to be discounted are the substantial hoops that often times appear necessary to open new bank (or CU) accounts and the aggravation that seems to more and more commonly come along with that these days (hard credit pulls, long wait times to get a rep on the phone, delays in account openings, limited ACH ceilings, etc...).

Given where Treasury rates are now, it would take CD yields in the mid 4.0% range or higher to get me to consider choosing them over comparable term Treasuries. Frankly, I am surprised that so many people seem willing to go through this dance with banks/CU's given the Treasury alternative.
Shelby
  |     |   Comment #6
Last week I opened CD's in the mid 4% range for 3 year terms and it was a very easy process.
MikeG62
  |     |   Comment #7
Care to detail the banks or CU names? Sounds like you opened several different ones.

Those who have been trying to open CD's at CFG bank or NASA FCU or Freedom CU or Sun East (to name just a few that come immediately to mind) haven't found the process very easy.
jimdog
  |     |   Comment #74
Exactly, I gave up after one month of trying to open up that 3.75% CD. Glad I did now because you can get a 4% treasury as you say MikeG62!!
mffarrell
  |     |   Comment #8
How far-out are you going with your T-bill purchases?
MikeG62
  |     |   Comment #10
I'd love to go out 10 years, but the rate is not there "yet" for me to go out that far.

A mix of Treasuries ranging from 3-month to 3-years. The shorter-term Treasuries I would sell and reinvest if the intermediate to longer-term Treasuries break 4%.

Purchases yesterday:
3-month 3.30%
6-month 3.73%
12-month 3.86%
18-month 3.80%
34-month 3.76%
36-month 3.73%

And was able to do all of this online from my computer without opening new accounts or going through any of that hassle.
mffarrell
  |     |   Comment #12
Thanks! So it looks like your are purchasing in the secondary market? I have only been purchasing at auction, because I am inexperienced. Do you purchase at the ask price or submit a bid price?
Thanks!
MikeG62
  |     |   Comment #13
Yup I buy in both, but yesterday was entirely in the secondary market. It is really easy - no more complicated really than buying in the primary market. If there was a 3 or 6 or 12 or 36 month auction yesterday, I probably would have done that for those term structures. But the spike yesterday was compelling enough for me to dive right in and make those purchases at that time.
mffarrell
  |     |   Comment #14
Thanks Mike! Do you normally place a bid on them, or just accept the ask price? I am not sure it’s like bidding on stocks.
MikeG62
  |     |   Comment #16
You place a bid at the market and get the ASK yield. Focus on and sort by Yield to Worst (which for Treasuries is the same as the Yield to Maturity, since they are not callable).

I do not try to get cute and place a bid at a limit price. I accept the price the market is providing at the time the order is placed. I always get at least the Ask yield - Fidelity often times gets me a few pennies better price than as shown price on the order screen.
P_D
  |     |   Comment #19
Warning about buying and selling treasuries in the secondary market. I've mentioned before that I don't advise doing this if you are inexperienced. There are a lot of issues, both market issues and tax issues, some of them complex, that you should understand. For example here are a couple I have not seen discussed anywhere:

In the current market, most of the treasuries that have a coupon have a coupon rate below market rates, and many well below market. If you hold one of these securities until maturity (or sell it prior to maturity for a gain) most of your income for tax purposes will be from capital gains. And those capital gains are taxable in most or all states that have a state income tax. So if you buy such a security, you will either partially or almost fully forfeit the advantage of having no state income tax on the income from your treasury security. So you may not be getting the tax advantage you think you are and you won't find out until later. I have never seen this discussed anywhere.

Here is another issue. If you buy the above security and it matures (or you sell it for a gain) in a future year, you are deferring much or most of the income into a future year. If you are concerned about income leveling and things like IRMAA and want to avoid exceeding taxable brackets by realizing too much taxable income in any one year, by buying these secondary market fixed income securities you may be exposing yourself to a spike in taxes down the road and a potential tax bomb.

Just a few of many potential pitfalls and unintended consequences, some others which I have mentioned before.
alan1
  |     |   Comment #21
P_D asserts:
"In the current market, most of the treasuries that have a coupon have a coupon rate below market rates, and many well below market. If you hold one of these securities until maturity (or sell it prior to maturity for a gain) most of your income for tax purposes will be from capital gains. And those capital gains are taxable in most or all states that have a state income tax. So if you buy such a security, you will either partially or almost fully forfeit the advantage of having no state income tax on the income from your treasury security. So you may not be getting the tax advantage you think you are and you won't find out until later. I have never seen this discussed anywhere."

Perhaps "this" has not been "discussed anywhere". If that's the case, there may be very good reason that no one has discussed P_D's assertion (which he graciously presented without providing any sources).

From IRS Publication 550, "Investment Income and Expenses (Including Capital Gains and Losses)":

Market Discount Bonds

Market discount arises when the value of a debt obligation decreases after its issue date. Generally, this is due to an increase in interest rates. If you buy a bond on the secondary market, it may have market discount.

When you buy a market discount bond, you can choose to accrue the market discount over the period you own the bond and include it in your income currently as interest income. If you do not make this choice, the following rules
generally apply.
• You must treat any gain when you dispose of the bond as ordinary interest income, up to the amount of the accrued market discount. See Discounted Debt Instruments, later.
• You must treat any partial payment of principal on the bond as ordinary interest income, up to the amount of the accrued market discount. See Partial principal payments, later in this discussion.
(emphasis added)

See pp. 14-15 of PDF at https://www.irs.gov/pub/irs-pdf/p550.pdf

Perhaps P_D is correct; I do not claim to have any expertise in the field of taxation of bonds purchased at a discount, and do not regard myself as sufficiently knowledgeable to express an opinion on this topic.

I would suggest that people interested in this topic take a look at other sources that may be relevant, in addition to giving due weight to P_D's naked claim.

Perhaps the quotation from IRS Publication 550 is not relevant to this matter; perhaps it's incomplete or incorrect. I hope that people who actually know something about this subject give us the benefit of their knowledge. And perhaps P_D could, on this one occasion, provide a source for his assertion on what strikes me as a somewhat complex area of income tax law.
sharon907
  |     |   Comment #24
Alan is correct, and it is always good to cite the source, as Alan did.

It is worth noting, taking the accretion as current year interest income does not solve the actual problem, because the owner will not actually receive, the accretion. So, tax may be due on interest income, that was not actually received.

Also worth noting, there is both "original issue discount" and "market discount" - and "market premium" - all of which are different, but have some similarities.

"Market discount" is one reason secondary fixed income, often yields above market rates. It also helps in the case of callable fixed income, reducing the likelihood of a call, and making a call more profitable.
P_D
  |     |   Comment #25
I agree. My first point about capital gain versus ordinary interest income is incorrect. I had something else in mind and made a mistake.

However my second point is correct, if the bond matures in a future tax year and you do not elect to accrue the market discount annually for tax purposes (which has to be explicitly elected), you will be deferring the income which could cause consequences that will negatively affect your taxes and any other expenses that are based on your level of income (including things like IRMAA, taxability of Social Security, property tax exemptions, etc.).

And my overall point is correct. Bond trades on the secondary markets can include complexities that participants are unaware of and they should proceed with caution.
MikeG62
  |     |   Comment #54
P_D said, "if the bond matures in a future tax year and you do not elect to accrue the market discount annually for tax purposes (which has to be explicitly elected), you will be deferring the income which could cause consequences that will negatively affect your taxes and any other expenses that are based on your level of income (including things like IRMAA, taxability of Social Security, property tax exemptions, etc.). And my overall point is correct. Bond trades on the secondary markets can include complexities that participants are unaware of and they should proceed with caution."

While it is true that an election could be made to have the market discount on Treasuries purchased in the secondary market taxed annually (vs. all at maturity), most people (probably the overwhelming majority of people) would rather not pay tax on imputed (phantom) interest they have not yet received. This is probably why brokers like Fidelity have as their default including all of that discount in the year the bond matures (or is sold). By the way, this is consistent with the default treatment of I-Bonds.

Speaking of I-Bonds, I've communicated with dozens of people through another online finance forum and I cannot find a single person who has any interest is taking the income on their I Bonds annually. In fact, when I have asked the question, every responder asked why in the world I would want to consider doing that. My reason is to smooth the income in over time and avoid having a bolus of income dropped into my tax return all in one year. It seems I am a man alone on an island with that view. Maybe you and I are the only two people who might prefer this treatment.

In conclusion, I don't think the default taxation of the discount rises to the level of advising one "proceed with caution". Yes, people should be AWARE of how the discount could be taxed (and make an informed choice should they wish to) - and I applaud you for raising that issue here. But the default is very likely to be the option most people would elect if making the choice.
Mak
  |     |   Comment #55
#54...You're dead on about when to take the I-Bond interest, I learned that the hard way.
MikeG62
  |     |   Comment #56
Mak, would you care to add more color to your comment?

I still have not decided how I am going to handle my I-Bond interest.
Mak
  |     |   Comment #57
Mike... hope that helped but I don't want to leave that up too long.
MikeG62
  |     |   Comment #58
I did not see the response. Can you PM me?
Mak
  |     |   Comment #60
I sent you a pm.
Choice
  |     |   Comment #62
On ibond interest taxation…if one elects to recognize as income annually/accrual interest it is my understanding that that would be for all ibonds. Consequently one would not have (as much) the flexibility of targeting what you want to do for all taxes at the end of each year. I like the flexibility of redeeming what/when I want and have taxes due for that year. My 2 cents
kcfield
  |     |   Comment #78
PD:: I have a question: One of the disadvantages of treasuries (as opposed to CDs) is the lack of compounding, which results in an effective interest rate loss. My question is: To what extent does the tax advantage of treasuries (i.e., not having to pay state or local income taxes) mitigate the loss of compounding with respect to total effective interest rate?
milty
  |     |   Comment #31
Never having bought any T-bonds, T-notes, or T-bills is it fair to say that the complexities or concerns being discussed here are not an issue for those purchases made from TreasuryDirect and held to maturity?
P_D
  |     |   Comment #33
#31 Generally yes.

But there are things to know if you want to compare treasury securities (even ones purchased through TD) with CDs in order to determine which is best for you. It is not an apples to apples comparison for a number of reasons. For example the quoted "yields" have different meanings and cannot necessarily be directly compared between CDs and treasuries. Also, treasuries may have a different frequency of paying out interest than a typical CD. Most CDs do not pay semiannual interest for example. This could affect the tax consequences of each differently. Also, unlike CDs, treasuries do not offer the option to reinvest the interest payments at the same rate as the security (no compounding).
Yu
  |     |   Comment #40
P_D, does that mean if I stick with T-Bill and 0% coupon rate T-notes, then I will always be able to take the advantage of not paying the state tax? Also, I will only pay Federal income tax in the year when those T-Bill/T-note mature or I sell them?
P_D
  |     |   Comment #43
Yu
The rule is that interest on Treasury securities will be exempt from state and local taxes, but capital gains will not.

In the case of both T-bills and STRIPS the income will be considered interest provided you do not sell them before maturity. Therefore the income should be exempt from state and local taxes.

Keep in mind that STRIPS may require you to pay income taxes every year on imputed interest you didn't actually receive. And if you sell them before maturity the tax rules are particularly involved.

if you're going to trade bonds you should use a CPA who is familiar with the rules because the rules can be complicated, sometimes change, and you want to avoid surprises.
w00d00w
  |     |   Comment #9
those all seem like valid concerns. brokered CDs are one way around many of those potential direct CD problems, but not going to get the "best" CD yields and sacrificing some liquidity vs Treasuries. i suppose there are many different schemes on how to get the best yield on "safe money." it's an individual choice on how much complexity, time, and effort to expend in the process.
MikeG62
  |     |   Comment #11
Brokered CD's have lots of hair on them - some/many are callable and pretty illiquid market if you want to exit them early.

Not only is it time and effort to fund traditional CD's, but it is "aggravation".

Read some of the comments in the recent threads on CD deals about people being given the run around trying to open and fund new accounts.

As one example, CFG bank wasn't even answering calls - and calls that went to VM found VM mailboxes full.

Another example, those trying to join Sun East CU are finding their membership fees to the Sun East Foundation aren't showing up to the Sun East CSR's such that applications are being denied.

In other cases, people calling into CSR's at other credit unions are finding they are 100+ deep in the queue.

Who needs those hassle when Treasuries are readily available and only a few mouse clicks away given how strong the yields are.
Moluciano
  |     |   Comment #27
You're on POINT Mike. I agree! I'm ALL US Treasury Notes until I see a significant move in long term CDs (5%+). As you know, it's easier/effortless dealing with US Treasury through TreasuryDirect.gov
MikeG62
  |     |   Comment #28
I agree with you Moluciano - not interested in CD's unless and until their yields are "well wide" of comparable term treasuries.

Where I disagree is where to purchase Treasuries. I have an account at Treasury Direct (for I Bonds), but that site is clunky and way outdated. I'd rather buy my Treasuries (whether at auction or in the secondary market) through Fidelity. One other disadvantage of buying through Treasury Direct, is you cannot sell a Treasury before maturity on the TD site. You have to move the security to a broker like Fidelity.
rsky
  |     |   Comment #41
Just wondering, what are people's thoughts on Treasury FRNs? Seems there's not much discussion/debate on them except for articles that are years old (e.g. https://anderson-review.ucla.edu/floating-rate/). Given the near-certainty of rising fed rates in the near term, FRNs would seem a better choice than 3-mo or other T-bills. Plus their prices are evidently very stable so selling them early if needed would seem inconsequential. Anyone have experience with Treasury FRNs since the rate hikes began?? (Note: I don't really care about corporate FRNs, only Treasury's)
jarednoska
  |     |   Comment #15
I have a couple of bump rate CDs. One is getting around 2.5% and could be converted to the low to mid 3% range right now. Given the likely trajectory of rates I am not sure if I should wait it out or lock in now. Is anyone else in a similar situation?
MikeG62
  |     |   Comment #17
Can you provide more details.

When were these opened up and when do they mature? What would be the EWP if you choose to break the CD's (in terms of number of months of lost interest).
Mals
  |     |   Comment #22
FYI - Brokered CDs today offered through Schwab, at 4.15% for 5 years albeit Callable. 4% for both 18 months and 3 years too. All issued by Chase Bank.
MikeG62
  |     |   Comment #29
I would not compare callable brokered CD's to Treasuries.

If I were inclined to buy callable brokered CD's (which I am not) I'd rather purchase callable US Gov't Agency bonds. Can get

Treasuries yields very close to the rates for the Chase brokered CD's you quote - may be long to those yields once considering the state tax benefit of Treasuries.
mffarrell
  |     |   Comment #30
I have been on Schwab this morning and did not see any CDs above 3.9%. Were the 4% CDs listed on the secondary market?
Mals
  |     |   Comment #32
Bonds and there is a CD row right above the Treasuries. I think these are all the Callables. That is where you see the 4%+
BTW - MikeG62, I wasn't trying to compare, just pointing it out to my fellow DA folks.
MikeG62
  |     |   Comment #34
No worries Mal. All good. Just trying to help out those who are newer to investing in fixed income - same as you.
mffarrell
  |     |   Comment #37
Thanks Mals, I see them now. I have been looking at CDs only from the drop-down menu and the yields displayed are different.

On the callable CDs some say callable on 3/23. Do you know if that means they may be called, or definitely will be called?

Thanks!
alan1
  |     |   Comment #38
"Callable" means that it can be called. The issuer is able to call the security. The issuer is not obligated to call the security.
Dentalman
  |     |   Comment #77
5 yr non-callable on Vanguard today.
4.25% with State Bank of India.
I know it’s an FDIC insured FI but still hesitant.
LovinSomeCDs
  |     |   Comment #23
Come on baby! Lets keep that inflation high through 2023. Papa needs to lock in some new 5-7 year CDs at 5%+!!

Remember..inflation doesnt hurt people who have everything they need, and were never really "stuff" accumulators in the first place. Food and energy is more, but not by that much...not enough to bankrupt anyone, jheez. As far as stuff like clothes, restaurants, and cars...heck, i dont need any of that, and have always been minimal on that stuff high inflation or not. My wife and I eat high quality food, AT HOME! Travel A TON by car (gas is pretty cheap in my book)! Life at the beach....good stuff!
QuickSilver
  |     |   Comment #26
The current Treasury year bill briefly hit 4% earlier today. Might have to put some funds to work at that rate. btw, income from T-bills is not recognized until they mature or you sell them. If you have a reason to push income into next year, they can be an excellent vehicle to do so. T-bills mature in one year or less and do not pay a coupon, as opposed to Treasury notes and Treasury bonds, which do pay coupons and have longer maturities.

Regarding some earlier comments, I've been buying new issue and secondary Treasuries for years. I do my own taxes and, so far, I've never had any particular problem with accretion of discounts or amortization of premiums. Your year-end brokerage statement should provide all the detail needed to fill out the forms correctly. It certainly shouldn't be a challenge for your tax preparer.

Treasury yields tend to respond to market conditions much more quickly than bank rates. IMO, it is useful to be prepared to use both depending or the direction of rates and your needs.
jimcarey484
  |     |   Comment #39
Hello everyone, a newbie to posting on this site. If I may put out a question that I honestly don’t have the experience to answer. For personal reasons, I like five year CDs. On the surface it seems best to wait to possibly get a rate between 4-5%. My concern is if the Fed raises rates we could go in a recession and CDs would come down … combine that thought with how slow long-term CDs have been going up. Now this is where my lack of knowledge kicks in. If I were a bank why would I commit to a 4 or 5% CD fully knowing how aggressive the Fed is, which means either A) we could go into a recession and rates will come down OR based on how aggressive the Fed is, that inflation could be at 2% in a few years … so,why would a bank issue CDs in the 4% or higher range for five years? Thanks in advance for your experience answers
QuickSilver
  |     |   Comment #47
Banks generally try to match the duration of their assets (loans) with the duration of their liabilities (deposits). Doing so allows them to manage their exposure to changes in interest rates. There are a variety of tools they can use to manage that exposure, but issuing CDs with a duration similar to that of their loans is one one the simplest.

Banks generally don't need to predict the path of interest rates to make money. Increasing interest rate exposure introduces volatility to their earnings stream. Investors prefer consistency.
rsky
  |     |   Comment #42
(Reposting this in a new thread)
Just wondering, what are people's thoughts on Treasury FRNs? Seems there's not much discussion/debate on them except for articles that are years old (e.g. https://anderson-review.ucla.edu/floating-rate/). Given the near-certainty of rising fed rates in the near term, FRNs would seem a better choice than 3-mo or other T-bills. Plus their prices are evidently very stable so selling them early if needed would seem inconsequential. Anyone have experience with Treasury FRNs since the rate hikes began?? (Note: I don't really care about corporate FRNs, only Treasury's)
QuickSilver
  |     |   Comment #46
According to the Tentative Auction Schedule on Treasury Direct, there will be a new 2yr FRN announced 9/22, auctioned on 9/28, and settles 9/30.

It will float against the weekly 3mo bill auction results. The last auction was a reopening of an existing issue. It came at +9 to the benchmark.

The benefit, IMO, is that the yield rises much more quickly than money market funds, plus the ultimate safety, as well as the state income tax exemtion. They won't be as attractive when the Fed is in easing mode because the yield will fall faster than money market funds and bank CDs.

I don't have access to data showing the volatility of the spread to bills, but I'd be suprised if it was significant. My broker does not have them in their online platform, so transparency might be an issue. Even so, I'm leaning towards getting my toes wet in the next auction.
MikeG62
  |     |   Comment #48
I wonder how easy they would be to sell in the secondary market should one decided to do that? They aren’t listed on Fidelity’s platform so I am thinking you would not be selling into a deep market (ie, you might not get the best pricing). But I have zero experience with them.
QuickSilver
  |     |   Comment #50
The last auction was for $20 Billion, so liquidity shouldn't be much of an issue. On the Schwab platform, I can see both the bid and offer of most Treasuries and get a sense of how fair the price is for the size of the trade. But, not FRNs, which is a concern. Schwab says that they do not mark up or down the quotes they get from their sources. From what I can tell, it seems to be true. Fidelity may have the same policy.

If I do buy them, it will be in the auction with the intention to hold to maturity.

For me, they are more yield sensitive alternative to money funds and more convenient than rolling T-bills. Another choice in a field of many.
rsky
  |     |   Comment #51
Thanks guys for the useful discussion. I was thinking similar to Quicksilver (#50)....i.e. whether to roll T bills or opt for FRNs. I too will very likely choose the latter and hold them to maturity, and do it all thru Treasury direct (TD) for simplicity.

The reason I like the price stability is that *if* I do decide to sell early at least they'd presumably fetch a price that minimizes losses i.e. leads to net gains (hopefully substantial....given, again, the high odds of elevated Fed funds rates thru most of 2023).

Also I'll likely bid a good chunk of change thru TD in the 5-year TIPS auction in Oct as I'm fairly bearish about inflation (...because, unlike the extreme-right wing political commentators here, most fair-minded ppl acknowledge it's mostly way outside the control of any one Pres....policies can contribute of course, but obviously no US admin has much control over e.g. global supply chains or even shelter costs, with the latter comprising ~one-third of CPI)
rsky
  |     |   Comment #52
PS Here's Treasury's explanation of how to sell FRNs early -- doesn't seem egregiously complicated, but again if anyone has experience doing this, do let me know....
https://www.treasurydirect.gov/indiv/research/indepth/frns/res_frn_sell.htm
MikeG62
  |     |   Comment #53
rsky, the complexity is not in transferring the securities to your broker (which is what is discussed at the link you supplied), it is in finding a broker who is willing to be involved in trading them in the secondary market for you (or anyone).

In the Boglehead link I referenced, it did not seem anyone knew of a broker who would assist with the sale.

Setting all that aside, for a FRN to beat a 2-year treasury, the FRN has to overcome a starting yield deficit of ~60bps lower (3.83% vs. 3.24% as of this morning). Not only does the 13-week have to increase to cover the ~60bps starting deficit, but it has to increase above the current 2-year yield by enough of a margin AND for long enough to overcome that headwind. With that challenge to overcome, it seems one would be taking quite a risk betting they will come out ahead with the FNR.

In addition, one has to wonder if the FRN does get to the point where it significantly exceeds the current 2-year yield (something in mid-4% area or higher), what might intermediate term treasuries (5 or 10 year notes) be yielding then and wouldn't you rather exit the highly liquid 2-year note early and move into the longer-dated treasury than be stuck with a FRN that you might find it hard to sell (or if you could sell who knows that kind of haircut you'd need to accept)?
DAtroll
  |     |   Comment #71
October's 5 year TIPS auction is a definitely worth dumping a "chunk of change" into.
Since it's an original issue, you get both inflation and deflation protection (if the yields remain positive).
Even if there was deflation for the entire 5 years of the TIPS bond, you're guaranteed to get par value at maturity.
If the yields remain positive at the auction date, the TIPS bond should be selling at a discount to par.
At maturity you get par value multiplied by the inflation factor on on the maturity date.
P_D
  |     |   Comment #49
The reason that FRNs have a relatively stable price is that their coupon rate floats. So that means it is marked to market regularly keeping the market price stable. That's a key reason why money market funds like to own them.

But a number of studies have shown that you pay a premium for this price stability compared to T-Notes of a similar term. If true, you may be paying extra for a feature you don't need.
w00d00w
  |     |   Comment #64
at the end of April, i bought both a FRN (with a negative spread) and a standard 2 year treasury at auction. initially, the FRN trailed by 170 bps but by the end of August, the floating rate had exceeded the 2 year rate at purchase and currently has a 40 bps lead.

so far then, the floating rate has been below the 2 year purchased rate for 4 months, above for about 1 month, with 19 months to go.
MikeG62
  |     |   Comment #65
I would not extrapolate that to conclude the same thing would happen if you were buying them today. 2 year rates and MUCH higher now. Less opportunity for the FRN to surge far ahead unless you think FF rate is going well north of 5%. And if that were to happen the 5 and 10 year would be very attractive and I’d be looking to exit the 2 year note and reinvest the funds in those longer dated notes. The 13 week will turn quickly if it becomes clear the Fed has on on a path toward a considerable recession.

Of course YMMY and predictions about the future are fraught with all kinds of risks.
w00d00w
  |     |   Comment #80
yes, i was just explaining what my experience had been so far with the treasury FRN.

recently, Schwab posted a graph of the Near-Term Forward Spread which, if i understand correctly, is basically what the futures market expects the 3 month treasury rate to be 18 months from now. as of the 9th, this reading is 37 bps above the current 3 month rate, much lower than the peak of around +250 bps for this cycle. incidentally, this indicator is the one Powell considers "most important for forecasting recessions," according to the article.

regardless of whether this prediction proves accurate or not, it does at least provide insight into what the market expects will happen. perhaps useful for setting general return expectations on what the treasury FRN will deliver.

https://www.schwab.com/learn/story/rate-hikes-quantitative-tightening-and-bond-yields
P_D
  |     |   Comment #45
What we need now is Reagan and Volker.

I have zero confidence in either Biden or Powell.

I think a lot of people are whistling past the graveyard on the economy. Others are just uninformed because they have no source of unbiased news. You can't have the kind of fiscal policy we have in Washington now and expect anything but disaster.

A change of management in Washington in November and in 2024 is the only hope to avoid the inevitable or at least mitigate the damage.

If you look around the world at some other countries that have gone down the same path America is on right now, you will see that there is more to prosperity for savers than high bank deposit interest rates.

Socialist Venezuela was the darling of the American left in the not too distant past. Of course now they want to censor any mention of it because it provides such a stark example of the inevitable results of socialism. You can earn 36% on your deposits now in a Venezuelan Bank. But you'll still be eating pigeons from the park and zoo animals. And that's why people are fleeing Venezuela as fast as they are fleeing the Democrat run states right here at home.

Socialism is the malignant destroyer of prosperity.
#72 - This comment has been removed for violating our comment policy.
milty
  |     |   Comment #73
"You can't have the kind of fiscal policy we have in Washington now and expect anything but disaster." Perhaps that will happen, perhaps not. In the meantime, we have a president not demanding the Fed go negative, and this blog is debating the merits of Bonds vs CDs in getting that golden 4%. Inflation is certainly a problem for many but not necessarily everywhere. However things go in today's Washington, am pretty sure it will not end in insurrection.

Regarding socialism, which btw includes collecting taxes to fund the military-industrial complex, how we doing?
https://www.businessinsider.com/19-countries-with-the-highest-standard-of-life-according-to-the-social-progress-report-2016-6
chaser14
  |     |   Comment #94
There was no insurrection. It was a mostly peaceful protest.
Choice
  |     |   Comment #95
Facts are terrible…but…And your rationale is? And your children think?  Grandparents/parents?  And of course they are fully aware of your….
  
PS:   DA, why are posts in italics? 
jimdog
  |     |   Comment #75
P_D You speak the blunt truth! Brandon is a disaster, agreed. The FED has lost all credibility due to their inflation is transitory dribble and after keeping rates near zero for 10 years!! The USA is in deep trouble.
Mak
  |     |   Comment #59
SPX is walking up the bottom of the triangle, hasn't broken it yet.
Mak
  |     |   Comment #63
Trying to break below now.
Mak
  |     |   Comment #61
I wouldn't be surprised if Biden starts to refill the SPR if oil drops another few dollars, if that does happen it should put a floor in the price of oil for a while.
Mak
  |     |   Comment #66
I'd like to retract this comment, I just read Cramer said something similar...;)
Robb
  |     |   Comment #67
Mak you pretty much nailed it :)
Mak
  |     |   Comment #68
61.8 fib backtest from the move off the low to the latest high(8/16) is 3901
Not as oversold or as much fear as I would like to see but this drop did leave a gap up around 4075... 5 day at 3995 but will move with the market so call it 4000
Mak
  |     |   Comment #69
Fed didn't sell any bonds last week, they bought $10 billion instead.
September 1st $8,826 billion...  September 14th $8,832 billion, someone needs to tell the fed it's going the wrong way...;)

In September they were supposed to shrink it by $97.5 billion, that means the fed will have to shrink it by $$103 billion in just 2 weeks, unless of course they are just talking.
Robb
  |     |   Comment #70
Mak let’s see if anyone in the media confronts Powell next week about the lack of progress on the balance sheet unwind. BTW noticed FDX a major economic bellweather issued a warning after the bell and is expecting a global recession. The hits keep coming…

https://www.cnbc.com/2022/09/15/fedex-ceo-says-he-expects-the-economy-to-enter-a-worldwide-recession.html
jimdog
  |     |   Comment #76
Again, more data that the FED is incompetent and talks out of one side of their mouth while doing something different. Since they are mostly DEMs on the FOMC they are trying to not hurt the market too much before the midterms. The FOMC is a totally politicized body! You can tell it by all the FED talk about the need to support climate change! What a joke they are.
milty
  |     |   Comment #79
I certainly don't disagree with investigating what is happening with the Fed's balance sheet reduction. But until we have that information, let's remember that it was Trump that nominated Powell to replace Yellen as Fed Chair in 2017, and of course used the rising stock market (due to ZIRP/QE) as his main benchmark for success while continuously calling for the Fed to go negative. Trump was indeed very dovish, too. "Trump reverses course, seeks negative rates from Fed 'boneheads'" https://www.reuters.com/article/us-usa-trump-fed/trump-reverses-course-seeks-negative-rates-from-fed-boneheads-idUSKCN1VW1CW September 11, 2019

Regarding climate change being a joke, perhaps more should be like the Patagonia CEO and pay attention to articles like:
https://www.noaa.gov/news-release/us-coastline-to-see-up-to-foot-of-sea-level-rise-by-2050
or
https://www.washingtonpost.com/climate-environment/2022/08/29/greenland-ice-sheet-sea-level/
GreenDream
  |     |   Comment #98
Keep in mind, Trump only had Fed members that past presidents put on the board (in Powell's case, that would have been Obama). Which Fed board members (placed on the board by which president) at the time do you think would have been a better choice for Trump to pick to replace Yellen as chair? Casue if you can't name one, your "Trump nominated Powell" mantra loses all meaning and is just your TDS showing through once again.
GreenDream
  |     |   Comment #99
"Regarding climate change being a joke..." (followed by scare mongering nonsense from the deep state).

Do you know what the current rate of sea level rise is? 1.4 mm a year!!!! By 2050 at the current rate you are talking a little less than 50mm (ie a little short of 2 inch.) even assuming a "scary" doubling or tripling of the rate (any more than that is simple physically impossible) between now and then, you're talking no more than 4-6 inches once 2050 rolls around. A foot is simply not going to happen outside of GIGO climate models that make unrealistic assumptions in order to drive scary headlines to fool idiots who do not look past the headlines and at the actual real world data.
Mak
  |     |   Comment #81
Since June 1st, 3.5 months the federal reserve's balance sheet has dropped $83 billion, so they've cut less than 50% of what they said they were going to cut. Seems it's a lot easier to QE than to QT... who knew??? I suggest that anyone can do what the fed does, lower rates to zero and create money to buy $120 billion a month in treasuries and MBSs to manipulate markets but what seems to be very difficult for them to do is be transparent when trying QT, in this regard they aren't even able to cut their bond exposure by even $25 billion a month....very telling.
milty
  |     |   Comment #82
Assuming that I am hovering over these charts correctly, I see that from 6/1 to 8/31 the Fed's balance sheet dropped by 88,957M, but from 8/3 to 8/31 that balance dropped by 48,527M, which I think is what was supposed to be happening with respect to QT.  Although the chart shows a downward trend seemingly starting in April, there are periods where the balance rises. But I don't know why that is happening. Supposedly, starting in September, the Fed is supposed to increase their QT pace.
Mak
  |     |   Comment #83
Yes, that is correct but I look at it like this. $47.5 billion a month starting June 1st thru August 31st is $142.5 billion but dropped only $89 billion. In September they said they would move that up to $95 bullion not $97.5 billion like I stated before. From August 31st to September 14th that has increased from $8,826 billion to $8,832 billion but on Sept 7th the balance sheet was $8,822 billion so last week they increased the balance sheet $10 billion.
That increase is the fed buying bonds imo, if it were something like what was mentioned on this site before that it is fluctuations in interest rates that are causing the bond values to change... that's not it, because the interest rates have been going up which would make bond values lower which would show a decrease in the balance sheet not an increase.... fed is selling bonds and then buying some bonds to smooth things out or some other underlying reason that we don't know of yet.

Now if you want to be generous to the federal reserve and give them benefit of the doubt , you could take the all time high of their balance sheet which was $8.965 billion on April 13th and forget about them saying June 1st but even in that case they are still behind schedule. Let's see where their balance sheet is at the end of September and see if they cut it $95 billion, I'm skeptical.
jimdog
  |     |   Comment #84
So you are saying the FED might be speaking with a fork tongue? LOL
pelkman
  |     |   Comment #85
FYI: Celtic Bank just had a 10 year non-callable brokered CDs on Fidelity at 4.5%. It only lasted a a short time before the inventory was bought up.

Also, State Bank of India has 5 year non-callable brokered CDs on Fidelity & Vanguard at 4.25%. Not bad. Still available at this time.
Mak
  |     |   Comment #86
gone already
Mak
  |     |   Comment #87
Back at Vanguard this morning.
h_meister
  |     |   Comment #88
Not on Schwab. Best they have this morning is 6 year with Celtic Bank @ 4.20%.
Choice
  |     |   Comment #89
After tomorrow those market based CDs will be going south in principal value
Mak
  |     |   Comment #91
TNX overbought, BND oversold.... don't like the setup.
pelkman
  |     |   Comment #92
Yes, noticed that as well with Treasuries over sold going into tomorrow's Fed Meeting...
Mak
  |     |   Comment #93
Gap at 3800 on the spx, if the market is oversold if and when it gets there I'll buy for a trade but so far its just teasing me....;)
jimdog
  |     |   Comment #96
I think the market will go far lower than anyone imagines.
People are fighting the FED and buying the dips, but it won't work because they are raising rates fast. Just as people fought the FED in selling when they were cutting rates, the market continued up. The FED buying bonds to decrease rates is over for a long time.
Mak
  |     |   Comment #97
jimdog......below SPX 2000 would surprise me ....I'm just looking for some short term trades to keep myself entertained. Not necessarily looking long term unless one of my trades fails...;)
Raj
  |     |   Comment #100
Increasing the interest rate does not solve the inflation problem. It makes the economy worse. Increase the supply of items and solve the Distribution p[problem.
Fed needs to stop increasing the rates
Federal Reserve, the Economy and CD Rate Forecast - Aug 30, 2022

After four weeks since my last Fed summary, I thought this week after the Fed’s Jackson Hole Economic Symposium would be a good time for a new summary. Top economists from the Fed and other central banks attend Jackson Hole, and news is often made by the Fed Chair’s speech. Fed Chair Powell's Jackson Hole speech on Friday was a little more hawkish than had been expected, and thus the odds of another 75-bp rate hike at the Fed’s September 20-21 meeting have increased some. The speech didn’t put to...

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Federal Reserve, the Economy and CD Rate Forecast - Aug 2, 2022

Future Fed summaries will no longer be published every Tuesday. Instead, the summaries will be published around once a month, typically one or two weeks before Fed meetings and after any important news on monetary policy. I’ll put more emphasis on the Wednesday summaries that cover rate changes and top rates of CDs and liquid accounts.

The Fed increased the target federal funds rate by 75 bps last week. It’s the second straight 75-bp rate hike, and it raises the target to the same level as the peak of the 2015-2018...

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Federal Reserve, the Economy and CD Rate Forecast - July 26, 2022

The FOMC meeting will conclude on Wednesday with the statement scheduled for release at 2:00pm EDT. Fed Chair Powell’s press briefing is scheduled for 2:30pm ET. Expectations are high that the Fed will announce a 75-bp rate hike.

If the Fed hikes 75 bps on Wednesday, the target federal funds rate will be back to the peak level reached during the last cycle (2.25%-2.50%). That would be about 4.5 months of rate hikes that would equal the three years of rate hikes from 2015 to 2018.

The fast pace of the Fed...

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Federal Reserve, the Economy and CD Rate Forecast - July 19, 2022

The release last Wednesday of the June CPI report, which showed inflation at a four-decade high, had the markets and many economists thinking that the Fed would again increase the size of its rate hike, this time to 100 basis points (bps) at its July 26-27 meeting. By the end of Wednesday, the Fed Fund futures market (via the CME FedWatch Tool) was showing odds of a 100-bp rate hike to be 80%, up from 9% the day before. Those high odds didn’t last. Fed officials started to downplay the...

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Federal Reserve, the Economy and CD Rate Forecast - July 12, 2022

Since my last Fed summary on July 5th, the 10y-2y spread (the difference between the 10-year and 2-year Treasury yields) has been negative. That inversion of the yield curve has added to the worries that the economy is heading toward a recession. Other conditions contributing to this worry include the falling oil and gold prices and a decade low in confidence among small-business owners.

The major economic data for this week is the June CPI that will be released Wednesday morning. The consensus is for an increase of 1.10% (MoM) and...

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