Fed Meeting: Forecasts Point to 3 Rate Hikes in 2022 - Strategies for Savers


The speed-up of tapering was formally announced in today’s Fed statement. This speed-up will result in tapering ending in March 2022. During the press conference, Fed Chair Powell confirmed that the Fed does not want to start hiking rates before tapering has been completed. Thus, the tapering speed-up should be considered a speed-up of future rate hikes. Also, the speed-up of future rate hikes can be seen in the new dot plot from today’s Summary of Economic Projections (SEP). The dot plot shows that 12 out of 18 of the Fed officials are projecting at least three rate hikes in 2022. That’s a big change from the September SEP dot plot which showed that 9 out of 18 Fed officials were projecting no rate hike in 2022.

Another important change in today’s Fed statement is the removal of “transitory” in describing inflation. Below is how the Fed described inflation in the November statement:

Inflation is elevated, largely reflecting factors that are expected to be transitory.

This changed to the following in today’s Fed statement:

Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation.

In Fed Chair Powell’s press conference, the opening remarks admitted that the Fed has underestimated the rise and the persistence of elevated inflation:

These problems have been larger and longer lasting than anticipated, exacerbated by waves of the virus. As a result, overall inflation is running well above our 2 percent longer-run goal and will likely continue to do so well into next year.

The opening remarks also acknowledged that the speed-up of tapering is largely due to elevated inflation:

in light of the strengthening labor market and elevated inflation pressures, we decided to speed up the reductions in our asset purchases.

In the press conference, Fed Chair Powell did note that this cycle is quite a bit different than the last cycle when the Fed moved from tapering to rate hikes at a glacial pace.

I don’t foresee that there will be that kind of very extended wait at this time. The economy is so much stronger. I was here at the Fed when we lifted off the last time, and the economy is so much stronger now, so much closer to full employment, and inflation is running well above target and growth is well above potential. There wouldn’t be the need for that kind of long delay.

The Fed’s decision today to accelerate the tapering didn’t seem to have any significant opposition by Fed officials. There was no dissent in the voting. All eleven voting members of the FOMC voted for the monetary policy action in the statement.

Summary of Economic Projections

The big news for savers came from the new federal funds rate forecasts (the dot plot) in the updated Summary of Economic Projections (SEP). There was a huge change in the dot plot from September to this month.

In the September SEP, the dot plot showed one rate hike in 2022. This was based on 9 out of 18 Fed officials who projected at least one rate hike. In today’s SEP, the dot plot now shows three rate hikes in 2022. This is based on 12 out of 18 Fed officials who are projecting at least three rate hikes in 2022. No Fed official is now projecting keeping rates unchanged in 2022. In the September SEP, 9 out of 18 were projecting no change in 2022. I don’t remember any past dot plots that have changed this quickly.

For 2023, today’s dot plot shows three additional rate hikes in 2023 (for a total gain of 150 bps from today’s rate). Out of the 18 Fed officials, 11 are projecting at least three additional rate hikes in 2023.

For 2024, today’s dot plot shows two additional rate hikes in 2024 (for a total gain of 200 bps from today’s rate). Out of the 18 Fed officials, 13 are projecting at least two additional rate hikes in 2024.

For the longer run federal funds rate, there’s no change in the dot plots between September and today. Out of the 18 Fed officials, 12 are still projecting that the target federal funds rate will be at least 2.50% in the long run. That’s about where the target federal funds rate maxed out in 2018.

Looking back at the dot plot in December 2018 is a good reminder that you shouldn’t put too much faith in the Fed’s forecasts. The 2018 dot plot showed that no Fed official projected any drop in the rates for 2019. Out of 17 Fed officials, 11 had projected two rate hikes in 2019. They were way off. The Fed cut rates three times in 2019 that lowered the target rate by 75 bps. That was before the start of the pandemic.

The SEP also includes forecasts on inflation, GDP and unemployment rates.

Inflation forecasts for 2022 were revised up substantially. The September SEP had a 2022 forecast for Core PCE at 2.3%. That was increased to 2.7%. The Fed still thinks that inflation won’t remain elevated. For 2023, it forecasts the Core PCE to fall to 2.3%. That’s just a little above the September forecast of 2.2%. For 2024, the forecast for Core PCE is 2.1%, which is the same as the September forecast. This explains why the Fed doesn’t intend to hike rates to 2006 levels. If 2023 and 2024 inflation surprises the Fed like it did this year, there’s a chance the Fed could return to the rates that we saw in 2006. Of course, that depends on the economy remaining strong.

Regarding the strength of the economy, the Fed is forecasting a strong 2022. Its GDP forecast for 2022 is 4.0%, up from 3.8% forecasted in September. However, its GDP forecast for 2023 declined from 2.5% in September to 2.2%. If the economy evolves like the Fed is forecasting in the next couple of years, rate increases may look similar to 2017 and 2018.

Future FOMC Meetings

The first three 2022 FOMC meetings are scheduled for January 25-26, March 15-16, and May 3-4. The March meeting will include the Summary of Economic Projections.

Treasury Yield Changes

The change in the Fed’s dot plot with three rate hikes forecasted for 2022 appeared to have some minor impacts on Treasury yields today. Treasury yields with terms from one to 30 years increased two to four basis points. It’s interesting to see how yields have changed since the last Fed meeting. Substantial yield increases occurred on terms from six months to five years. The 2-year yield had the largest gain, rising 22 bps since the November meeting. For the long-term Treasury notes and bonds, yields had a substantial decline with the 10-year falling 13 bps and the 30-year falling 14 bps. With the surge in inflation, one would think we wouldn’t see these yield declines. There is a good discussion of this odd condition in this A Wealth of Common Sense blog post.

The following yields are from the Treasury website.

  • Nov 3rd (last mtg) → Dec 14 → Dec 15
  • 1-mo: 0.05% → 0.02% → 0.03%
  • 3-mo: 0.05% → 0.05% → 0.05%
  • 6-mo: 0.07% → 0.13% → 0.13%
  • 1-yr: 0.17% → 0.26% → 0.29%
  • 2-yr: 0.47% → 0.67% → 0.69%
  • 5-yr: 1.19% → 1.23% → 1.26%
  • 10y: 1.60% → 1.44% → 1.47%
  • 30y: 2.00% → 1.82% → 1.86%

Future Deposit Rates

If there are three Fed rate hikes in 2022, we may start to see some online savings account rate hikes in late 2022. It definitely appears that rate increases will come faster this time compared to the last zero rate cycle when the Fed did a one-year pause of rate hikes after liftoff in December 2015. Of course, if the economy has troubles, the Fed won’t think twice about pushing out future rate hikes. That is what happened in 2016.

When the Fed finally started to regularly hike rates in 2017, we saw some online savings account rate hikes. So it’ll probably take at least three or four Fed rate hikes (assuming 25-bp rate hikes) before we see widespread online savings account rate hikes. It may take longer this time due to the record high levels of deposits at banks.

Online CD rates have already started to increase. In November, the average online 5-year CD rate increased 15 bps (to 0.86%), and the average online 1-year CD rate increased 3 bps (to 0.51%). I think these small rate increases will likely continue as long as multiple Fed rate hikes appear likely in 2022. However, I don’t think we’ll see large CD rate increases until the Fed has hiked rates multiple times.

If high inflation does force the Fed to be more aggressive with rate hikes, there’s a question about how that will impact the economy. I worry about this negatively impacting the markets and the economy due to the economy’s dependence on debt and ultra-easy monetary policy. If a fast and large increase in rates results in a recession, high rates may not last long.

Strategies for Savers to Maximize Cash Yield

A combination of I Bonds, high-yield reward checking accounts, and CDs with mild early withdrawal penalties will likely generate yields much higher than the best online savings accounts.

I Bonds and high-yield reward checking accounts will allow you to earn much higher yields than the yields from today’s online savings accounts. Reward checking offers a high degree of liquidity, but I Bonds lack liquidity for the first year of the purchase. So it’s best not to depend entirely on I Bonds for your savings. There’s also a 3-month interest penalty when I Bonds are redeemed during the first five years, but that’s a small penalty when compared to CDs.

The main issue with both I Bonds and reward checking accounts is balance limitations. After you max out I Bonds and your reward checking accounts, the remaining balance can go into CDs and/or savings/money market accounts. In today’s world, it might seem savings accounts make much more sense than CDs. Unless you think rates will shoot up in 2022, CDs with mild early withdrawal penalties can make more sense.

Series I Savings Bonds

High inflation from March through September has resulted in a record-high I Bond inflation rate of 7.12%. Unfortunately, the I Bond fixed rate remains at 0%, so the composite rate equals the inflation rate. I Bonds that are purchased through April 2022 will earn an annualized yield of 7.12% for six months. The rate for the next six months will depend on inflation from September through March 2022. In mid-April 2022, we’ll be able to calculate the next I Bond inflation rate. Even if inflation falls in the next year, I Bond yields will likely be far higher than the yields of any other conservative savings product.

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

High-Yield Reward Checking Accounts

Reward checking accounts have a similar small-balance issue. High rates only apply to balances that typically range from $10k to $25k. Unlike I Bonds, you have to be willing to do the work to earn the high yields on the reward checking accounts by meeting the debit card usage requirements. There are a few reward checking accounts (some with linked savings accounts) that do offer high rates on larger balances. These rates can be much higher than the average online savings account rate, and the balances can be between $100k and $200k. Last week I published this post with a list of these reward checking/savings combos that offer high yields on large balances.

Top Long-Term CDs with Mild Early Withdrawal Penalties

As we have seen in the last 12 years, higher rates are not a sure thing. It’s possible that rates will remain at record lows past 2022. So you may not want to give up on CDs. For example, a 49-month CD at 1.70% APY could provide 3x the interest as compared to an online savings account that may average only 0.50% for the next 49 months (see my bi-weekly CD rate summary.)

Even if the Fed starts hiking rates in 2022, I doubt online savings account rates will rise substantially before 2023. A top long-term CD with a 6-month early withdrawal penalty that’s opened today and closed early after one year will likely earn a bit more interest than an online savings account. If rates don’t rise fast, the CD will earn much more than the online savings account.

You can calculate the effective yields when you close CDs early by using our CD EWP Calculator. I’ve pre-populated the CD EWP Calculator with five competitive long-term CDs with EWPs that range from five months’ interest to 12 months’ interest. As you can see, if savings account rates don’t increase over the next year, you’ll earn more with these CDs that have EWPs of five or six months of interest (Please be aware that there are some risks in planning for an early withdrawal of a CD.)

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 should happen to rise, choose long-term CDs with early withdrawal penalties of no more than six months of interest. If you are concerned with rates rising very fast in the next year, keep more in online savings accounts after you have maxed out your reward checking accounts.

Combination of All of the Above

For your safe money (with no risk to principal), a combination of I Bonds, reward checking accounts, online savings accounts and CDs can still make sense.

  |     |   Comment #1
If the Fed is able to stick to its plan to curtail QE and increase rates, comparable to 2017/2018, I would certainly expect a correction in the stock market. But this alone should not be seen as the economy having troubles, rather a return to normalcy.
  |     |   Comment #2
Indeed, but we must remember that the 2017/2018 economic milieu was quite different from today's in all sorts of ways, on both fiscal and monetary fronts.

And "normalcy" is normally defined by the populace of the "normal", which as always is situationally defined.
  |     |   Comment #3
One scenario Ken didn't mention is runaway inflation similar to the 1970's. Under this scenario we may be seeing far greater interest rate hikes than anyone is now forecasting. We could even see a deep recession because the Fed will have no choice but to keep hiking rates to get inflation under control. This is what happens when you wait too long before dealing with the problem.
  |     |   Comment #4
Stagflation. In 6 or 7 months ago I was giving it about a 50% chance. Now I think it's about 75%. A lot depends on how much of the Democrat' agenda they can shove through next year before the midterms. The less they can pass, the less chance of serious economic downturn and stagflation. So far their reconciliation bill looks like a fail for this year at least if not permanently. But they still have a year left to create an even worse disaster until they are hopefully slaughtered in the midterms.
  |     |   Comment #5
Stagflation like we had under NIXON/FORD in the 1970s. All the things we need to be in a RECESSION like all the REPUBLICAN admins did for over the last 100 years: HARDING, COOLIDGE, HOOVER, EISENHOWER, NIXON, FORD, REAGAN, BUSH, BUSH and TRUMP.
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  |     |   Comment #9
Why not include Congress? Except for the second Bush and Trump, the Democrats controlled all or 1/2 of Congress for every administration you cited since 1932. Congress passes all laws, including spending bills, tax legislation and economic regulations.
  |     |   Comment #10
The President sets the policy,and approves and vetos.
  |     |   Comment #11
And congresses writes and pass the bills (whether or not that match the presidents policy) in the first place and has the power to override vetoes. The constitution gives the House the power of the purse, not the president. If a bill is written by and doesn't pass congress it never makes it to the president's desk to be signed or vetoed The blame or credit belongs to the party that controls congress alongside the party that controls the presidency. You need both working together to get any bill into law.

You'd probably (and wrongly) give Bill Clinton all the credit for a "budget surplus" in the later years of his presidency, but that never would have happened without Newt Gingrich and the contract with America., As Newt's House drafted and passed the bills (based on the items in the contract with America, not on anything the President and his party ran on) to the president's desk that managed to make that surplus happen
  |     |   Comment #19
Bills are not laws, until they are signed by the President regardless of whom the president is and regardless of which party controls congress.
  |     |   Comment #27
Laws can't become laws without being bills first. No bill, no law. period, regardless of whom the president is.
  |     |   Comment #35
From politifact:
"Winning Our Future’s ad says, "Newt balanced the federal budget."

Gingrich was House speaker in 1998, the first year of the surplus, and he can be given some credit for the 1999 surplus, even though he was out of Congress for most of that fiscal year.

Even so, simply being speaker during the surplus years doesn’t mean that the balanced budget was his doing. He pushed for it, yes. But other factors like Clinton’s 1993 tax increase -- which Gingrich opposed -- were at work, too. And our experts agreed that a booming economy, generating millions more revenue, was the single most important factor, and one that no politician can take credit for. We rate the ad’s claim Half True."
  |     |   Comment #37
a politifact "fact-check", rollseyes. As Facebook admitted in court, so-called fact checks are only opinions, not facts.
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  |     |   Comment #46
You mean like:
Giuliani said: “When you tell me [Trump] should testify because he’s going to tell the truth so he shouldn’t worry, well that’s so silly because it’s somebody’s version of the truth, not the truth."
“No, it isn’t truth!” Giuliani roared. “Truth isn’t truth.”
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  |     |   Comment #14
I do think the Fed waited too long during the 2008 Recession as well as the 2020 Pandemic to reduce QE and raise rates. But as to whether this will lead to stagflation is yet to be seen. It seems to me when the Fed dropped rates in 2019 it was to appease only the stock market. So, I think if the Fed just focuses on its two mandates, with a longer view to past rates than more recent, then hopefully things will be fine. The government's infrastructure bill, whatever becomes of the reconciliation bill, and of course our habitual defense spending (~$1T/yr) should keep the economy humming, which of course the Republicans would not like to see (a tip of the hat to PD).
  |     |   Comment #18
US defense spending in 2019 was $731.75 billion. Which is not "~1T/yr" unless being off by one third counts as accurate.

Spending for the most important, most legitimate function that the federal government provides was a paltry 3.41% of US GDP.

In contrast Russia spends about 4.3% of their GDP on their military.
  |     |   Comment #22
  |     |   Comment #23
See https://www.thenation.com/article/archive/tom-dispatch-america-defense-budget-bigger-than-you-think/
Final tally $1.25T per year (from 2019, so even more now). BBB budget pales in comparison.

See https://www.brown.edu/news/2021-09-01/costsofwar
Appears spending on your most important, most legitimate function has produced little return, not to mention Iraq and Vietnam.
  |     |   Comment #29
"Appears spending on your most important, most legitimate function has produced little return, not to mention Iraq and Vietnam."

It produced the strongest, most powerful, freest, most prosperous, most opportunity providing, most innovative, most technologically advanced, most prized by immigrants, most copied, most charitable, most compassionate, most tolerant, inclusive and ethnically, religiously and racially diverse nation in the history of the human race.

Without the US Military being the most powerful in the world America would be none of those things.

I'd say that's a pretty darn good return on investment.
  |     |   Comment #30
Again, another unsubstantiated claim.
  |     |   Comment #38
Yup, Afghanistan was a GREAT investment!
Not mentioning lives lost, over 2 trillion dollars down the tube.
And, the costs haven't stopped just because US left.
"Estimates of the amount the United States has committed to cover health care, disability, burial and other costs for about 4 million veterans of Afghanistan and Iraq: more than $2 trillion. And the period when these expenditures peak will be after 2048."
  |     |   Comment #6
The news can always be better, especially from the Fed, but I’m happy that higher rates are on the horizon. For me, my sweet spot for 5 year CD rates is 3.5%. That will give me enough supplemental cash flow to ride the final waves of life without much financial worry. I’m hoping that we can return to those days when 3.5% was relatively common, which was only a few years ago. I would think and hope that 5 year CD rates should start to trend higher in the coming months. Arthritic fingers crossed!
  |     |   Comment #13
3.5% only really works if inflation is relatively low. 3.5% in a 7+% inflation world wouldn't do much to alleviate your financial worries.
  |     |   Comment #16
Inflation is measured by the cost of the items in your basket. If most of the items in "your" basket are less affected by inflation (of course you may have to adjust your basket with an eye on your budget) then you might very well be just fine with a 3.5% return. Contrary to what some believe, inflation is not a tax.
  |     |   Comment #17
You can mitigate *some* of the effects of inflation. It's not possible to mitigate all of them, particularly when inflation is affecting price of goods/services that you can't avoid (energy costs to heating your home in the cold of winter, for just one example). The higher inflation goes the more inflation in the areas you can't mitigate impact you. So, sorry, but contrary to what some believe 3.5% return during periods of high (7+%) inflation won't leave you "just fine".
  |     |   Comment #24
I believe some switch to burning wood, turn down the thermostat, stop eating meat (not necessarily a bad thing), cut back on non-essentials like vacation travel or eating out, shop around for the best deals (see a site called depositaccounts.com), utilize those stimulus and CTC checks, etc., etc. Yes, there are definitely ways to mitigate the costs of inflation, including the Fed raising rates.
  |     |   Comment #28
Glad you think radically altering ones lifestyle and level of comfort is merely "mitigating" inflation, but it's still a loss of value of your money and hardly a sign that one is doing "just fine".
  |     |   Comment #32
Everyone's happiness factor is different. For example, some like to drink and smoke regardless of their health, or gamble regardless of the odds Some like to try to beat inflation and are willing to trade.
  |     |   Comment #34
Wow, Jimmy Carter's "malaise and wear a sweater" speech! Haven't heard that one in a while. Who knew it was even still in the hopper?

  |     |   Comment #36
Hmm, I like Jimmy Carter, he's a decent man.
  |     |   Comment #21
Anyone that refers to an "inflation tax" has zero credibility in my book. Senator Manchin is one of them. Although I have to give him credit for fighting against giving tax assistance to people that don't need it.

For example the current "Social Infrastructure" bill gives parents earning up to 250% of the state’s median income will pay no more than 7% of their income on child care. That's $307,500 in New York state! Hardly poor folks.

It's a shame there isn't an official "none of the above" when voting. It would be nice to know how many people are like myself and can no longer stomach either party.
  |     |   Comment #25
Totally agree with you regarding Manchin's holding the line on certain family spending included in this budget. Of course, I believe the regular CTC bill passed by the Republicans in 2017 allows families earning up to $400,000 to claim the credit. Shame on both houses when it comes to tax fairness.
  |     |   Comment #33
"Anyone that refers to an "inflation tax" has zero credibility in my book."

Then you do not understand inflation. It is in fact a tax in every sense of the meaning. It is a transfer of wealth from taxpayers to the government no different than any other tax. And it is massive. When sudden inflation occurs as it has now, those who own US debt (the majority of which is owned by Americans) are effectively transferring their wealth to the US government because the value of their asset is diminished and the magnitude of value the government debt is reduced. And they are not receiving compensation for that loss in the form of higher rates. It has the same net effect as any other tax. And it is levied through government policy just like any other tax. So far this administration levied the biggest inflation tax in the last 40 years. It has so far cost the average family $3,500 this year alone. And by the way since it also causes the purchasing power of every dollar to decline, it is a tax on everyone else too. This also transfers your wealth to the government the same as any other tax.
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  |     |   Comment #41
#21 Milton Friedman made the comment "Inflation is taxation without legislation".
  |     |   Comment #42
Hi Rickny.... #41 Yes, Milton Friedman did make that statement. And strictly speaking it is accurate. But in this case I think it taxation *with* legislation at least in an indirect sense. I think the legislative/executive policies of this congress and administration are directly responsible for the inflation. It isn't like we couldn't see it coming when they were warned that their actions would trigger an inflation storm just at the time when it hurts the country the most. They summarily ignored the warnings and guess what happened?
  |     |   Comment #44
Friedman was beloved for his neoliberalism . . . and not much else.
  |     |   Comment #47
"Friedman was beloved for his neoliberalism . . . and not much else."

Wrong on both counts. He was beloved for his neoclassicism not neoliberalism. He was also known for his Nobel Prize in Economics, for being the backbone of intellectual economic thought leadership at the University of Chicago, the leading college of economics of the time where he taught a number of people who went on to be leading economists (including my sibling who was an economic advisor to President Reagan), and for his unmatched thought leadership in the field of economics. He was arguably the most important economist of his time.
  |     |   Comment #52
Definitely, it is arguable. Anyway, I certainly don't doubt your affection for Friedman. But you're living in the Reagan/Thatcher 80s, man. Friedman was also seen as a libertarian, which has close similarities to neoclassical and neoliberal economics, with respect to unfettered, free market capitalism. As far as nobel laureates in economics, I prefer Joesph Stiglitz:

"When Blodget opened the discussion to the panel he had assembled, Columbia University's Joseph Stiglitz remarked, 'I want to emphasize that it was, in this period, not only activist shareholders but Milton Friedman,' the late economist and fellow Nobel laureate, who was to blame for this prevailing ideology. 'And he was wrong.'"
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  |     |   Comment #49
The first and better known "Milty", aka Friedman (and G*d forbid I should ever say "better" as opposed to "better known", else the censors-from-H**l on this website would strike me down - of course, they may anyway) - famously said this:

"Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.

That is exactly what has happened. Massive increase in the money supply has happened from BOTH the monetary side (controlled by the Fed.) and the fiscal side, controlled by politicians. Pols of BOTH parties (over the years), by the way, have been responsible.
  |     |   Comment #48
To Comment #21 - You stated “It's a shame there isn't an official "none of the above" when voting. It would be nice to know how many people are like myself and can no longer stomach either party.”

Well, what a nice thought! While I can't oblige you regarding creating a brand-new category on the ballots of all 50 states (that would be unconstitutional as I am neither an elected official nor a Federal judge), I can state the following -

The “next best thing” to what you seem to want might be a poll of how the “independent voters” (independent of either party - assuming it was even necessary to add that) - state they would vote.

OK, so how would that happen? Guess what, you can find that out for yourself! Without even having to plow through whatever bias I might potentially add (or not add).

Simply Google the voting preferences of Independents, regarding Biden, at Inauguration (I), then I + 3 months, I + 6 months, I + 9 months, etc. Surely you can figure it out from there on out.
  |     |   Comment #53
I generally do not see Independents as independent, when most actually do have a party preference. Personally, I think they should get off the fence so they can vote in the Dem/Rep primaries. But, albeit the majority of them supported Biden's election, you're right they have become a problem for him at the moment. However, it's still early, these perceptions can change in an instance . . . such fickle voters.
  |     |   Comment #40
That's what most people don't understand about the BLS's inflation numbers. It's a weighted average.for the whole country. At least the BLS provides information on each individual component. Some of these other inflation measurement sites don't bother doing that. One popular site that I researched included "equestrian riding lessons" and "nannies" as components. Yup, that's something that reflects my personal spending habits.
  |     |   Comment #20
I’m reposting this quote from a WSJ article, because I think this thread is more suited for it. While the article is discussing big banks, it doesn’t make you overly optimistic about prospects of higher rates in general.

“Banks make their core profits from collecting more interest from borrowers than they have to pay depositors. As the Fed raises interest rates, banks can start charging more for loans but are unlikely to face higher deposit costs immediately.

“When looking at the consumer deposit base, sometimes I think it’s déjà vu all over again,” Bank of America Chief Executive Officer Brian Moynihan said in October. “In 2015, 2016, 2017, it was all about the Fed’s going to normalize rates and you’re going to have to raise prices. And we didn’t have to.”
That is expected to play out again this cycle. The biggest banks are awash in deposits, even more so than they were a few years ago, so they can afford to be stingy.
On the other hand, banks are able to raise interest rates on loans fairly quickly.”
  |     |   Comment #26
I don't doubt that this will be a prolonged recovery due to the deposit vs loan imbalance. But, am hopeful that the smaller banks/credit unions will not have fared so well, and will soon be hunting for depositors. One reason this site is so helpful is that it reveals these opportunities, and I would not have done near as well, regarding my deposit accounts, without it.
  |     |   Comment #31
This site has been helpful for me too. And I also hope that smaller banks/credit unions are going to be kinder to depositors. But I’m not optimistic, because there are too many variables to be confident in steady recovery.
  |     |   Comment #45
Let us remember that paying down interest bearing debt remains a viable savings strategy/alternative, especially in our minimal savings interest rate environment. For example making an extra 1000.00 payment on a 10% interest rate credit card is like earning 10% in savings. Or an extra 1000.00 payment to principal on a 4% interest rate mortgage is like earning 4%.
  |     |   Comment #50
I think that's good advice kc and good to remember. There are two sides to the interest rate story, one for debtors and one for creditors. It's wise to pay attention to both.

Also, if you are a debtor on something like a mortgage or other potentially refinanceable debt, now is the time to refinance. Rates are at historical lows and this may turn out to be a once in a generation opportunity. Don't wait.
  |     |   Comment #51
Point/counterpoint…except (perhaps) in anti-deficiency states…look before you leap!
Fed Meeting: Tapering Starts - Deposit Rates and Strategies for Savers

At the completion of its two-day FOMC meeting, the Fed announced the start of tapering in its FOMC statement. As expected, the pace of tapering will be $15 billion reduction per month, which should end asset purchases by June of next year. The Fed left open the possibility that it might adjust the pace of tapering:

The only other important change is related to the Fed’s “transitory” inflation language. The Fed is still sticking with transitory, but it added some acknowledgement of uncertainties. It also tried to provide an explanation about...

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Fed Meeting: Forecasts Point to 2022 Rate Hike - Strategies for Savers

At the completion of its two-day FOMC meeting, the Fed issued a statement that had the one important addition that points to a taper announcement at the Fed’s next meeting (November 2-3):

The only other change from the July FOMC statement was the recognition that the latest COVID-19 wave has impacted the economic recovery:

Everything else in today’s FOMC statement was the same as the July statement. The statement continues to claim that the recent high inflation is transitory. “Inflation is elevated, largely reflecting transitory factors.” The zero interest rate policy and...

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Fed Meeting: Small Step Toward Tapering - Strategies for Savers

At the completion of its two-day FOMC meeting, the Fed issued a statement very similar to its June statement. The only significant change was a subtle reference to tapering. It suggests that the Fed is starting to think about tapering. It should probably be viewed as the first step that will culminate in a formal announcement in the FOMC statement that a reduction in asset purchases will take place. Below is an excerpt of today’s FOMC statement. I bolded the new sentence that was added.

That formal announcement is probably several...

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Fed Meeting: Forecasts Point to 2023 Rate Hike - Strategies for Savers

At the completion of its two-day FOMC meeting, the Fed issued a statement very similar to its April statement. As expected, there were no policy changes. The big news was in the Fed’s Summary of Economic Projections (SEP). The SEP dot plot shows that the majority of the Fed now think that there’ll be rate hikes by the end of 2023.

Today’s FOMC statement only had minor changes from the April statement. First, the Fed removed the opening statement about the pandemic “causing tremendous human and economic hardship.” That sentence has...

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Fed Meeting: Zero Rate Policy Continues - Strategies for Savers

At the completion of its two-day FOMC meeting, the Fed issued a statement very similar to its March statement. The only change was in the economic overview. The April statement is a little more positive about the progress on the recovery. Also, the new statement is acknowledging a rise in inflation, but as expected, the Fed considers this a temporary situation. The following are excerpts of the two statements that show the changes:

Excerpt of the March FOMC statement:

Excerpt of the April FOMC statement:

The Fed also removed the word “considerable” in...

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