Fed Meeting: Downshift to 25-bp Rate Hike - Strategies for Savers


At the conclusion of the FOMC meeting this afternoon, the Fed announced a 25-bp rate hike. This follows a 50-bp rate hike in December and a 75-bp rate hike in November. It’s interesting to note that the Fed has ramped down its rate hikes like it ramped up rate hikes early last year. That suggests this might be the last Fed rate hike, but it’s too early to make that call.

This downshift to a 25-bp rate hike was highly anticipated after the inflation reports over the last two months that have indicated inflation is starting to ease.

The target federal funds rate is now 4.50%-4.75%. This is now 225 bps above the peak of the last rate hiking cycle (2015-2018). We haven’t seen federal funds rates this high since late 2007. The last time the Fed increased the target federal funds rate to 4.75% was in March 2006. During this period, the target was a specific rate rather than a 25-bp range.

Below are excerpts from today’s FOMC Statement that covers the rate decision:

the Committee decided to raise the target range for the federal funds rate to 4-1/2 to 4-3/4 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.

It’s important to note that the Fed is still saying that it “anticipates that ongoing increases in the target range will be appropriate.” That should help the odds of another rate hike in March.

Today’s FOMC statement was very similar to the December statement. Besides the higher rate, one important change was in the description of inflation. In the December statement, the Fed described inflation as follows:

Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.

This sentence was replaced with the following one in today’s statement:

Inflation has eased somewhat but remains elevated.

The fact that the Fed acknowledges that inflation remains elevated should also help the odds of another rate hike in March.

All voting members voted in favor of today’s policy action.

More To Come

I plan to update this post later today with commentary on the Fed Chair press conference. In addition, I’ll discuss my take on deposit account strategy in this environment. I just wanted to publish this initial post so that comments can begin.

Update: The following content was added at 9:17pm ET on Wednesday, February 1, 2023:.

Post-Meeting Press Conference

Fed Chair Powell continues to suggest that there’s a high bar for the Fed to start cutting rates. In his opening remarks, Fed Chair Powell had this to say about inflation:

The inflation data received over the past three months show a welcome reduction in the monthly pace of increases. And while recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path.

In the Q&A portion of the press conference, Fed Chair Powell was asked by WSJ reporter Nick Timiraos, “why not stop here and see what transpires in the coming months before raising rates again?” Part of Fed Chair Powell’s reply was as follows:

We’ve raised rates four and a half percentage points and we’re talking about a couple of more rate hikes to get to that level we think is appropriately restrictive. And why do we think that’s probably necessary? We think inflation is still running very hot.

Later in the Q&A session, Fed Chair Powell reinforced the notion that there was still a long way to go for the Fed before it could start rate cuts:

We’ve got a long way to go. It’s the early stages of disinflation [...] It has to spread through the economy, and it’s going to take some time. [...] If the economy performs broadly in line with those expectations, it will not be appropriate to cut rates this year.

Near the end of the press conference, Fed Chair Powell reiterated that rate cuts this year are unlikely. However, he did somewhat acknowledge that the markets might be right in the expectation that inflation will come down faster than the Fed currently expects, and that would open the door to a rate cut this year:

Given our outlook, I don’t see us cutting rates this year. [...] If we do see inflation coming down much more quickly, that will play into our policy.

It appears that if inflation generally follows the Fed’s forecasts, we’ll see at least two more 25-bp Fed rate hikes with no rate cuts in 2023. If inflation falls more than what the Fed has forecasted (more in line with the market’s forecast), it’s possible that March may be the last Fed rate hike and a Fed rate cut will occur later this year. The apparent willingness of Fed Chair Powell to acknowledge this possibility made the markets happy this afternoon.

Future FOMC Meetings

The next three FOMC meetings are scheduled for March 21-22, May 2-3, and June 13-14. The March and June meetings will include the Summary of Economic Projections (SEP).

Treasury Yield Changes

Treasury yields fell after the Fed meeting. The long-dated Treasury yields had the largest declines. The 30-, 10- and 5-year yields fell 10 bps, 13 bps and 15 bps, respectively. The short-dated yields had little to no declines. The 1-, 3- 6- and 12-month yields fell 0 bps, 4 bps, 1 bp and 2 bps, respectively.

It’s also worth noting that long-dated Treasury yields are also down from the last Fed meeting. Short-dated yields are up significantly.

Since the Fed has more impact on short-dated Treasury yields, it makes sense that these yields have risen. The fall of long-dated Treasury yields can be attributed to market expectations on future inflation.

The yield curve continues to become more inverted. The spread between the 10-year yield and the 3-month yield (10y-3m spread) is now -127 bps. After the last Fed meeting, that spread was -84 bps. The 10y-2y spread has become slightly less negative since the 2-year yield has fallen more than the 10-year yield. The 10y-2y spread is now -70 bps. After the last Fed meeting that spread was -74 bps. Historically, the more inverted the yield curve, the more likely that a recession follows within the next year.

The following yields are from the Daily Treasury Par Yield Curve Rates from the Treasury website.

  • Dec 14 (last mtg) → Jan 31 → Feb 1
  • 1-mo: 3.91% → 4.58% → 4.59%
  • 3-mo: 4.33% → 4.70% → 4.66%
  • 6-mo: 4.68% → 4.80% → 4.79%
  • 1-yr: 4.64% → 4.68% → 4.66%
  • 2-yr: 4.23% → 4.21% → 4.09%
  • 5-yr: 3.64% → 3.63% → 3.48%
  • 10y: 3.49% → 3.52% → 3.39%
  • 30y: 3.52% → 3.65% → 3.55%

Future Deposit Rates

Online savings account rates should be close to the target federal funds rate (TFFR). With the new TFFR now at 4.50%-4.75%, we should see more online savings account rates move into the high 4%. One has already reached 5% (5.03% APY at Primis Bank). In December, MySavingsDirect was the first to move into the TFFR range (4.25%-4.50%).

In the last month, we didn’t see many online savings accounts move into this TFFR range. The large online savings accounts were particularly disappointing, with most of them remaining far below this TFFR range. If that trend continues, we’ll likely see only a few online savings accounts in the new TFFR range (4.50%-4.75%) with the major online savings account rates struggling to surpass 4%.

I’m more pessimistic about CD rates. The December 50-bp Fed rate hike didn’t impact the top CD rates much. I compared the top rates from the December 7th CD summary to today’s CD summary. As you can see, most of the rates have fallen:

Top 5-year CD rates from Dec 7th to Feb 1st:

  • Banks: 4.75% → 4.59%
  • CUs: 4.60% → 4.80%
  • Brokered CDs: 4.05% → 3.70%

Top 1-year CD rates from Dec 7th to Feb 1st:

  • Banks: 5.00% → 4.85%
  • CUs: 4.86% → 4.76%
  • Brokered CDs: 4.80% → 4.75%

The only increase was the top 5-year CD rate at credit unions. With the smaller rate hike today, it seems that CD rates will more likely fall than rise in the next six weeks.

Strategies for Savers to Maximize Cash Yield

If we don’t get any upside inflation surprises, it’s hard to see what could drive long-term CD rates higher. Short-term CD rates may rise a bit higher, but based on the last six weeks, I doubt we’ll see widespread increases.

I think it’s likely that long-term CD rates have peaked. It’s still easy to get long-term direct CDs with rates over 4%. For brokered 5-year CDs, 4%+ rates are already gone. It might not be long before 4% long-term direct CDs are gone.

CDs with Mild Early Withdrawal Penalties

Since you can never be sure if rates have peaked, look for CDs with mild early withdrawal penalties (EWP). For long-term CDs, a mild EWP would be six months or less of interest. If rates do go higher, a mild EWP will make it less costly to close the CD and move the funds into an account with a higher rate.

Add-On CDs for Low-Rate Insurance

Another useful strategy is to acquire as many long-term add-on CDs as you can. Open these with just the minimum deposit. If rates rise well above your add-on CD rate, you can just let the add-on CD continue without additional deposits. With a small minimum deposit, this won’t cost you much. On the other hand, if rates do fall before the add-on CD matures, the value of the add-on CD grows as rates fall. In this case, the additional deposits into the add-on CD could earn you a lot more than opening a new CD. Long-term add-on CDs can be a great low-rate insurance policy, offering some protection against falling rates.

Online Savings Accounts and No-Penalty CDs

For the cash you want to keep liquid or for cash that’s waiting to be used for CDs, Treasurys or other investments, it makes sense to keep that cash in the highest-rate savings or money market account. There’s already one online savings account with a yield over 5% (It’s the Primis Bank savings account with a 5.03% APY). Several other online savings and money market accounts have yields well over 4%.

It’s important to remember that these high yields will fall quickly once the Fed starts to cut rates. Some of the ones offering the highest rates may fall even before the first Fed rate cut. No-penalty CDs can be useful if rates start to fall. They can also be useful to provide a boost to your online savings account rate. Just make sure you monitor the rates. If your online savings account rate rises above the no-penalty CD rate or if a new higher-rate no-penalty CD becomes available, it’s time to close the no-penalty CD and move those funds.

If you plan to use the money in the online savings account or no-penalty CD to fund a standard CD, make sure that you can withdraw the funds fast and without dollar limitations. The new/small online banks offering the highest rates often have weak ACH bank-to-bank transfer systems.

Treasury Bills/Notes

The yields of Treasury notes no longer have a rate advantage over top direct CDs. However, Treasury bills (with terms of one month to one year) have yields that are closer to the top CD yields. There are a few CD Specials which have higher rates than T-bills for similar maturities. For non-special CDs at major online banks, T-bill yields are generally higher.

Treasury bills and notes have some tax advantages. Unlike CDs, they’re exempt from state and local income tax. To see how Treasurys compare with CDs when state income taxes are considered, you can use this useful Fidelity calculator.

In addition to these tax advantages, Treasurys held at one brokerage firm can be easier to manage than direct CDs held at multiple banks and credit unions. That’s especially the case for IRAs.

One downside of Treasurys is an uncertain cost if you want to access the funds before maturity. That requires selling the Treasury on the secondary market. Unlike direct CDs, there’s no fixed early withdrawal penalty.

Series I Savings Bonds

I Bonds continue to be a good deal with a current composite rate of 6.89%. This combines an inflation rate of 6.48% and a fixed rate of 0.40%. This I Bond fixed rate is a significant improvement over the 0% fixed rate that has been in effect since 2019. I Bonds that are purchased through April 2023 will earn an annualized yield of 6.89% for six months. The rate for the next six months will depend on inflation from September 2022 through March 2023. In mid-April 2023, we’ll be able to calculate the next I Bond inflation rate. I Bonds may lose their appeal if inflation falls.

The main issue with I Bonds is that you’re limited to just $10k per year per SSN (plus $5k with your federal tax refund).

I have more details on I Bonds in this post. There are ways to buy more I Bonds. This article at The Finance Buff describes how a married couple can buy up to $65k in I Bonds each calendar year via trust and business accounts.

Treasury Inflation-Protected Securities (TIPS)

TIPS bonds are an alternative to the I Bond. Like they I Bond, they provide inflation protection. Unlike I Bonds, there are no purchase limitations. The appeal of TIPS has gone up this year as their real yields have risen above 0%. Currently, the real yields are between 1.14% and 1.33%. Six weeks ago, the real yields were between 1.30% and 1.39% (see Daily Treasury Par Real Yield Curve Rates). Two useful resources on TIPS are this post by Harry Sit of The Finance Buff, and this Q&A on TIPS by David Enna of TIPSWatch.

Combination of All of the Above

It’s wise to remember that no one can accurately 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 should happen to rise, choose long-term CDs with early withdrawal penalties of no more than six months of interest. You can also ladder Treasury bills/notes and TIPS.

If you think rates have more room to rise, keep more in online savings accounts, no-penalty CDs, and/or T-bills.

For your safe money (with no risk to principal), a combination of I Bonds, TIPS, T-bills/notes, online savings accounts and CDs can make sense.

  |     |   Comment #1
Thanks as always Ken. Onward and upward.
  |     |   Comment #2
Long rates (over a year) ticking lower
  |     |   Comment #4
5-year Treasury yield down 14+ bps right now after the Fed meeting.

One man's tick is another man's crash. :)

Great news for bank margins: loan rates higher, CD rates lower. Bank of America stock up 7.19% in January. That will likely well exceed the inflation rate for the entire year.

On the other hand, this is looking like it's going to be a third year in a row of real losses to inflation for bank depositors. At that rate, with 3 years of losses under your belt, even with the best highest rate and longest CDs, it's questionable whether or not you can make up those losses by the time they reach maturity. So even a break even isn't a sure thing even if you could get 5% 5-year CDs if you consider the losses you've already incurred.
  |     |   Comment #3
I think everyone who reads this blog, and even the moderator himself, should take a moment to appreciate surviving unprecedented turbulent economic times. Needless to say I’m guessing all or most of you are receiving at least 4% on your investable funds. Some have taken the plunge with CDs paying over 5%. Others are buying time with 4.5% 4 week T-bills to pause awhile and return a month from now to see where things stand.

None of these options exceeds the current 6+% inflation rate, So perhaps the best way of viewing the situation is to wait patiently for falling rates with a downturn in inflation and then to be prepared to pounce on long term CDs before their rates fall as well.

In the meantime, continue the fight for every dollar. But ration your strength, this won’t be a short term skirmish.
  |     |   Comment #35
People need to stop posing year over year inflation numbers (6+%). That means nothing. If you wait for that number to drop to under 2%, you will have completely missed the game.

Right now, over the last 6 months the real yearly inflation rate has been equal to 0.33%. If this disinflation continues forward you will be rewarded very well by locking in long term rates now. You won't see long term rates vs inflation differentials like this again, especially if you believe we are headed into a recession. Recessions usually bring on rate CUTS.

That said, inflation is still a concern and we will know in the next 3 months if inflation is thing of the past. Historically Oct-Dec CPI-U numbers are the lowest inflation numbers for the calendar year. From 2012 to 2019 the average month over month for these 3 months is: -0.016%, -0.246%, -0.203% (actual deflation). Historically Jan-Mar CPI-U numbers are the highest inflation numbers for the calendar year. From 2012 to 2019 the average month over month for these 3 months is: 0.240%, 0.417%, 0.445%. If we see numbers for January - March posted under these month over month numbers, look out below. You will not see long term rates greater than 3-3.5%. And inflation will drop below 2% year over year by summer.

All IMO, Steve
  |     |   Comment #47
Hay it sounds like we think somewhat the same however the wealthy will still not be touched. They need to step up their game and put some money to work so as to balance it somewhat. You can buy a decent dish washer for maybe 600.00 dollars but to get that same washer fixed it may cost more than if you just bought a new one.That poor guy fixing these machines can't make money this way
  |     |   Comment #5
So did anybody hear the White House saying that it would be a catastrophe if we allow the treasury to default because it would cause loan rates to skyrocket, the stock market to crash and inflation to spiral out of control?

Was I the only one thinking that yeah it WOULD be a catastrophe to have the same thing happen that happened over the last two years since the Democrats took control of Washington?
  |     |   Comment #6
you have all that big money ?
find a dark corner.
Holding a thumb in mouth should calm ya down.
moderator not needed
  |     |   Comment #9
RE: Was I the only one thinking that yeah it WOULD be a catastrophe to have the same thing happen that happened over the last two years since the Democrats took control of Washington?

I certainly wasn't thinking that! It's easy to play a blame game and single out one culprit but let's not forget many other factors that play into the scenario including the Federal Reserve's policy, which is non-partisan. There are also many positive things that are happening in the United States under the current administration especially as compared to other countries in the world.
  |     |   Comment #44
Current unemployment rate at 3.4%, lowest since 1969, which sure beats Trump's paltry 3.6%. Sure I know Republicans want to blame Biden for everything (including the earth's inner core slowing down due to paying poor people to not work), but the real facts are employment numbers look good and folks here at least are earning tens of thousands more in interest, which way more than covers the price of eggs. However, as Steve58 has noted, inflation appears to be waning, so I think now is the time to consider locking in some longer rates.
#48 - This comment has been removed for violating our comment policy.
  |     |   Comment #7
Loving this inflation! More please!

Rates at my credit union went down 5 basis points (no biggie). Either way, we are all making more than we were 2 years ago. As far as inflation is concerned, just simply buy less, its worked in my household. Inflation has given my household higher interest income, and a higher W2 salary at work. Between w2 and interest income, we far exceeded the 8-10%(?) inflation rate. Both of those things, salary increase and CD interest increase, would have never happened without high inflation. The beauty of it all, when the recession hits later this year, and prices go down, our household salary and (7 year) CD interest will remain at the higher amount.

Inflation isnt bad for everyone.
  |     |   Comment #8
For Michigan people you can still get 4.75% with a bump up in interest for 5 years. I picked it up the first week of Dec.
Again thanks to Ken!!!!
  |     |   Comment #10
Depending on where "you" are (located or background to qualify) you can get 5+ % APY (ALL in CU as just one longer term [email protected] 5.05%, Savebetter for a shorter term via Sallie Mae as another @ 5%) for a CD; load and forget about it!

I'm taking the plunge ASAP/now for 49~ mos w/ ~ NASA CU at 4.75% APY and 60 mos at All In CU at 5.05% APY 60 mos - both Jumbos NOW to almost fill my CD ladder- and then I'll await a midterm for a year 2-3 ish year CD expiration prior to the above maturity and shop them more all while playing more golf.

This too shall pass!
  |     |   Comment #12
All of my Cd's are 5 to 7 years and jumbo CD's. I do this to stay in my CD ladder. I continue to invest again in that time frame. I have been doing this for years and have some come due several times a year. If I waited for this one in DEC I would lost nearly $1300 a month. With compounding for those 5 years it will make I think 5.23%. I don't wait in this environment and mess up the continuing ladder I have every few months. Another will mature in a couple of months and another one in July. I have already finagled my Navy accounts around to get another 100,000 traditional IRA into Navy next Jan and take out 100,000 in a Roth next Jan so I can continue to do Roth conversions without penalty and have continuing insurance. I was over the insurance for my IRA's with them for a few months and if it was anyone but Navy I would have been more nervous. And in Jan I will be able to add the traditional IRA and the Roth conversion to an existing IRA CD's that I have open with them. Or I can also open another Roth and traditional CD with Navy if rates are higher. I am trying not to go over the insurance by the time they mature. The Roth IRA that matures in July I have to split because the July interest will make it over the insurance limits.
  |     |   Comment #16
NAVY is one of the strongest and biggest CU in the world. You could sleep good with 1mm in NAVY but no one else.
  |     |   Comment #14
Is ALL in CU open to everyone? Doesn't seem to get much coverage on here but i see they do have a jumbo 60 month at 5.05%
  |     |   Comment #15
If you fit into any of the following categories, you are eligible for membership:

Active duty military, civilians, and retirees attached to Fort Rucker, Alabama
Fort Rucker / Wiregrass Chapter of the Association of the United States Army
Active duty, retired military, and civilians in the Mobile Bay area
Everyone who lives, works, worships, or attends school in Pike and Crenshaw Counties in Alabama
Everyone who lives works worships, attends school, or volunteers in most areas of Coffee County in Alabama (see member service representative for information)
Everyone who lives, works, worships, or attends school in most areas of Mobile County, Alabama (see member service representative for information)
Everyone who lives, works, worships, or attends school in Walton County, Florida
Everyone who lives, works, worships, or attends school in most areas of central and eastern Houston County, Alabama (see member service representative for information)
  |     |   Comment #19
Jeff in Eastern Florida (if his moniker is accurate) does not live in the membership area of All In Cu. Jeff, do you worship in a location on the other side of the state? LOL
  |     |   Comment #11
During the four years of the Trump administration and Republican control of both houses of Congress the percentage of our national debt to our nation's gross domestic product (the country’s ability to pay down its debt based on its annual economic output) rose from 106% to 128%. Under the Biden administration and Democratic control of both houses of Congress that percentage decreased to 124% last year.
  |     |   Comment #13
Your assertions didn't sound right to me so I did a little checking. The Democrats ruled the House after 2018 mid terms. The debt to GDP ratio at the end of 2019 was 108ish. Come March, 2020 Covid arrived.The country shut down, GDP tanked and "emergency spending" ensued. This arguably skewing the ratio because of the crisis. The issue here is the inflationary spending by Washington.
  |     |   Comment #17
Lou… do you suggest using Vanguard/Fidelity while waiting for those 5.5/6% yields on the 5 year CD’s you talked about in 2022? Or have you given up on your prediction that long term rates will significantly rise in 2023? It looks like rates are going the other way (LOWER) and many here are scrambling to lock in 5 year CD rates NOW ...below 5%.
  |     |   Comment #18
Discover just dropped their 5 year rate to 4.3%.
  |     |   Comment #20
Well I see no point in locking up long term CD's at sub 5% when you can get that rate on liquid cash and have add-on CD's plus short term 5%+ CD's as a back up. Sure liquid rates can drop quickly but on average over 5 years you have 0% chance of beating inflation locking up under 5% IMO. At least with liquid cash you can do bank bonuses, buy dividend paying stocks, but short term CD's with cc funding and grab a long term CD special if a decent one comes along....in short you still have options. I guess I just prefer not to pay EWP's.
  |     |   Comment #21
If you lock in a 4.75% for 5 or 7 years right now, you really think inflation wont be belowe that by end of year or into 2024?

Lock in a 5 or 7 year now at sub 5, and you will absolutely beat inflation....in about a year. So, you "dont beat inflation" for 1 year out of 7..big deal.

Thats my opinion though, not everyones.
  |     |   Comment #22
I think this is again not a one size fits all decision. I manage several different entities and have different investment strategies for each depending on their cash flow needs, the level of risk that is appropriate for that entity and other factors.

The fact is that any money you had in a bank account has lost value over the past couple of years. You have already incurred the loss. So looking at the long term one of the factors you need to decide is if you want (or need) to attempt to recoup that loss going forward or just accept it and move on. Whether or not you have an opportunity to recoup those losses and restore the value of your bank deposits to their former level using more bank deposits depends on what happens in the future in the bank deposit market. But at the moment, with long term deposit rates moving lower, it is looking increasingly unlikely that you will be able to both recoup those loses and maintain even a break even result over the long term with bank deposits. So in order to have a chance at achieving that, you probably need to consider some other asset class such as equities, junk bonds or other riskier assets.

I much prefer the last rate cycle in 2018/2019 when inflation was ~2% and you could get long term CDs in the 3-3.5% range over the current rate cycle when inflation reached nearly 10% while CDs were still having a hard time breaking 3.5%. And in the last rate cycle you had a few years remaining of very low inflation (it was only 1.4% when the Democrats took over) while you earned positive real returns.  This rate cycle you took a (relatively for a "safe" asset) massive percentage loss for a long time on your bank deposits (and still are taking additional loss) and are unlikely to be able to recoup it in this asset class going forward. You have already paid a tremendous inflation tax on deposits held in banks and credit unions no matter what rate you are getting.
  |     |   Comment #32
Over the last 6 months inflation has been equal to 0.33% yearly rate. If this disinflation continues forward you will be rewarded very well by locking in long term rates now. You won't see long term rates vs inflation differentials like this again, especially if you believe we are headed into a recession.
  |     |   Comment #33
"Over the last 6 months inflation has been equal to 0.33% yearly rate."

Huh? How do you arrive at that number? It's closer to 7%.
  |     |   Comment #34
Inflation over the last 6 months has been 0.33% when looking at CPI-U numbers:
June 22 = 296.311
Dec 22 = 296.797

(12/6)x(296.797-296.311)/296.311= 0.00328 (0.328%)
  |     |   Comment #37
Okay CPI-U... That's too narrow. Doesn't consider factors such as nearly two job openings for every unemployed worker and the depressed CLFPR. Wage inflation is the biggest problem now. Even if you assume a recession, I think a reasonable case can be made that the wage inflation will persist because you still need workers. Not a sure thing but possible.
  |     |   Comment #25
But we have to remember we pay the income tax on the interest also.
We don't know what we don't know. We can only plan for what is best for our situation and have things set aside if there is an even a worse downturn than those of the past. I remember living in the basement of the house we were building with 2 children and taking baths in the laundry tubs while we were finishing the house in the 80's and with the high unemployment my husband was working only 3 days a week but we could work more on the house. The only thing I know is I do not want to loose a large amount of money and I want to sleep at night. We have gifted since the 90's when the boys were out of college and I was able to arrange accounts for them taking my name off when my husband was in hospice so they would inherit his life insurance, retirement accounts and the money from the sale of our 4 bedroom home on 58 acres with a pond that I sold when we bought a house in town to be close to the doctors. Now by continuing the gifting and doing this with the CD's and converting to a Roth part of my traditional IRA each year for the last 10 years still keeping my Medicare premium at the lowest amount, they will be able to inherit even more tax free and not pay tax. Hopefully. But laws change and maybe one day either Roth IRA's will count into IRMAA or maybe inherited accounts will. We don't know what we don't know. And to think we did this rarely making over $60,000 a year.
  |     |   Comment #23
Something struck me about the Fed meeting and yesterday afternoon's follow on news conference:

The term "disinflation" was heard among all participants over and over and over. This is a reference to inflation itself subsiding. However, and this is a big however, there were zero references to any sort of return to the status quo ante. Apparently it is anticipated, and accepted, that we will go on living with existing inflation residue ad infinitum, together with that from the considerable inflation still in the pipeline.

In my opinion inflation until now has not fully been reflected in wages. Wages, writ large, will have to go up from here in order for millions of working American families to be able to cope. We may be seeing some disinflation, but this economic episode is not over by a long shot.
  |     |   Comment #24
I've got my cash parked in a money market fund that invests mostly in US Treasury repurchase agreements (repo). The yield is directly tied to the Federal Funds rate. Literally the next day after the funds rate increases the yield on the money market fund follows it. I'm taking the Fed forecast at their word on a couple more small rate increases then holding the rate at these levels until inflation is back to 2% or we fall into a depression. Probably early next year now.
  |     |   Comment #26
Aren't repo's debt from other companies, or people in debt or etc.? Do you know what kind of repos you are invested in? of if they are collateralized?
  |     |   Comment #27
A repo transaction is just a loan. It's the short term sale of an asset (by the borrower) to raise cash coupled with an agreement to repurchase the asset at a specified price and time. The asset is the collateral, so in the case of treasury repos the treasury security is the collateral. Or in the case of other federal assets they are the collateral. Low risk although not zero risk.
  |     |   Comment #28
Yes. We sold them at the bank in the 80's, but the assets were the business and personal loans, ( I assume held by banks etc) and not treasury repos. They were not rated at that time. I refused to sell them because they paid 1/4 to 1/2 more than CD's and people did not realize they were not insured and they did not have a list of what they were actually purchasing. They were called repos on the board. There were some parts of them that were not paid during that time. A lot of them were business loans. So you are in one that has assets from the treasury why not get a short term bond? What is the difference? The interest? or getting in and out fast?
  |     |   Comment #29
Differences I can think of offhand:

*It is typically a one day term, and you can't necessarily find another cost efficient source for a one day bond.

*It comes with a guaranteed buy back price. A bond purchased in the open market does not (unless maybe you find one that matures in one day so you will receive par at maturity but again don't think you'll find an efficient market for that.).

*Did not think this one through to explain it better, but a repo sale is typically a discount transaction with no "coupon" involved. If you tried to substitute buying a security with a coupon it would complicate the transaction.

Possibly more but only have a moment to write this and think about it. :)
  |     |   Comment #38
Didn't know you could do it for one day. We sold them from 14 days up. I do CD's only and savings and reward checking accounts and free checking at places I have CD's so they can deposit the check in there.
  |     |   Comment #39
Take a look at the prospectus and monthly holdings report for FZDXX.
  |     |   Comment #30
Coming up on that gap at 4200ish and we are looking overbought and looking a little greedy....amzn and aapl earnings after the close better be good....;)
  |     |   Comment #40
Looks like the market will take the gains all back tomorrow.
  |     |   Comment #31
Inflaiton over the last 6 months has been 0.33% when looking at CPI-U numbers:
June 22 = 296.311
Dec 22 = 296.797

Historically the last 3 months of the calendar year are typically low inflation when compared to the first 3 months of the calendar year.

The January CPI-U report will be the most telling. If trend for last 6 months stays low, long rates will drop some more and inflation is on the way out. You best load up on the 3, 4, 5 year CDs. I already have.

  |     |   Comment #36
I just looked at the headline CPI numbers and it increased 0.9% since July (July through Dec) which on an annual basis is 1.8%. Still very good but not what you are suggesting.
  |     |   Comment #46
My calculations and numbers were correct. I posted the calculations above in comment #34.
  |     |   Comment #41
  |     |   Comment #42
Wow! NFPayrolls came in HUGE!

With the revisions, payrolls were up roughly 600,000. Every aspect of the data - unemployment rate, participation rate, workweek, wages - came in above expectations. So strong we'll probably see fact-free claims of data manipulation.

No reason here for the Fed to slow down their campaign to contain inflation. Maybe, just maybe, we'll see longer CD rates turn around and head higher.
  |     |   Comment #43
Yes sir things can change quickly which is why I don't jump on the capitulation bandwagon. It didn't make sense that inflation would just disappear overnight when the FED waived it's magic wand with a few rate hikes. It just doesn't work that way once inflation gets a foothold it's not so easy to clamp down at least if you look at history as an example. I figured we would get some bumps along the way sooner or later.
  |     |   Comment #45
Yes, but wage price gains decreased to 0.3% in Jan less than the 0.4% in Dec. That's 3.6% annualized. This number is still going in the right direction and really the only number in this report that directly impacts inflation.
  |     |   Comment #50
How do you find no penalty CDs?
  |     |   Comment #51
Aren't those the new crop of Callable CDs? No way in heck would I get into those.

I feel it. Another month or 2 Ill settle on something. Trying for something no less then 3 years. Meanwhile the savings accounts are at or close to 5%. The Drama with SVB hits close to home.
Thank gowd I dont listen to Cramer. lol He was wrong again. It looks like the most of the executives sold shares a month before it collapsed. I doubt there will be justice but we will see.

Here is a quick rundown which is funny to watch. Which bank is next who knows.

Fed Meeting: Downshift to 50-bp Rate Hike - Strategies for Savers

At the conclusion of the FOMC meeting this afternoon, the Fed announced a 50-bp rate hike. After four 75-bp rate hikes at the last four meetings, the Fed decided to downshift to a 50-bp rate hike. This was highly anticipated after the recent lower-than-expected inflation reports.

The target federal funds rate is now 4.25%-4.50%. This is now 200 bps above the peak of the last rate hiking cycle (2015-2018). We haven’t seen federal funds rates this high since late 2007. The last time the Fed increased the target federal funds rate...

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Fed Meeting: Fourth Straight 75-bp Rate Hike - Strategies for Savers

At the conclusion of the FOMC meeting, the Fed announced its fourth straight 75-bp rate hike. The target federal funds rate is now 3.75%-4.00%. This is now far above the peak of the last rate hiking cycle (2015-2018). We haven’t seen federal funds rates this high since early 2008.

Below are excerpts from today’s FOMC Statement that covers the rate decision:

In the rate decision paragraph, there are hints that the Fed is preparing to slow the pace of the rate hikes. The excerpt below is what was added from the previous...

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Fed Meeting: Third Straight 75-bp Rate Hike - Strategies for Savers

At the conclusion of the FOMC meeting, the Fed announced its third straight 75-bp rate hike. The target federal funds rate is now 3.00%-3.25%. This is now far above the peak of the last rate hiking cycle (2015-2018). We haven’t seen federal funds rates this high since early 2008.

Today’s FOMC Statement is actually very close to the July Statement. Below are excerpts from today’s FOMC policy statement that covers the rate decision:

All voting members voted in favor of today’s policy action.

In addition to the statement, the Fed released its quarterly...

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Fed Meeting: Second Straight 75-bp Rate Hike - Strategies for Savers

At the conclusion of the FOMC meeting, the Fed announced its second straight 75-bp rate hike. The target federal funds rate is now 2.25%-2.50%, which is the target range that had existed at the peak of the last rate hiking cycle in December 2018. It took three years of rate hikes from 2015 to 2018 to equal the rate hikes from the last four and a half months. Below are excerpts from today’s FOMC policy statement that covers the rate decision:

For the full details, please refer to today’s FOMC Statement.

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Fed Meeting: First 75-bp Rate Hike in 27 Years! Strategies for Savers

Update 10:30pm, 6/15/22: Reviews of the Fed Chair press conference and the Summary of Economic Projections (SEP) were added. Also, sections on Treasury yields, deposit rates and strategies for savers were added.

The Fed announced its first 75-bp rate hike since November 1994 at the conclusion of its meeting today. The target federal funds rate is now 1.50%-1.75%, which is the target range that had existed before the start of the pandemic. If the Fed hikes 75 bps again at its July 26-27 meeting, we’ll be back at the peak...

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