I am wondering if anyone wants to try to predict what will happen to medium to long term CD Rates in 2023. I believe that starting in April or May the 5 year CD rates will be 50 to 75 basis points the current average. By the end of the year the decline should be a total of 100 basis points from where we are now. I would be interested in your thoughts on this issue
Answers
But you'll find an opinion on here that makes a pretty decent case for CD rates increasing, CD rates decreasing, and CD rates remaining steady at current levels.
That being said, I'm in the camp that believes rates will go a bit higher but not by much. By the end of the FFR rate hiking cycle, we should see some smaller CU's and online banks with long term CD's near 5%. I think the stingy big banks will top out around 4.5-4.75 range.
My golden plan was to invest all my money in 10 year treasury notes at 6%+ and that never happened!
OMG, please do not walk away....I will continue to need your help. Just curious, did you invest with Discover for 10 years at 4.40%?
The 5-yr is close to 4%. Nobody here would have predicted this 10 days ago and nobody here or elsewhere knows what is going to happen in the next few months, but have a good time guessing.
I expect 2 more 25 bps increases (possibly not in a row but, sooner than later), then a pause and if the numbers don't show significant "disinflation" another raise or two in fall that will shake equity markets.
What we hear on the street, from the White House, Yelling Yellen and the Fed all will continue to contradict each other. There is STiLL far too much money (look at the restaurants, highways, theme parks, cruise lines, Spring Break vacations et all) MONEY still in circulation and overemployment to get near the Feds preferred 2% CPI. Yet, we will continue to get fake news from the mass media of "hard times and recession" prodding yet even more government intervention (spending) as needed et all when the opposite is reality.
The White House, however, will proclaim "happy days are here again" in their weekly message - inflation is falling, until fall when grandstanding for an election in a year will turn the message to "who you want in hard times, us or them" as they point to 2008 as an irrelevant example!
Cash will be king - for a while but, I'm not excited that largely available rates out past 3~ years will be even 50 bps higher than today...the banks do NOT want the risk, 2008/9 is still in their memory.
Just don't be surprised if inflation continues above the Feds preferred 2%~ CPI rate and the Core Rate doesn't fall to the Feds wanted levels in 2023. The Fed will reappear concerned in fall after a summer market rally thus shaking equity markets in October (again). If so, there will be 1 or 2 more late year FFR increases that the White House and lefti$t$ will oppose as "bankrupting those who can least afford it". (Like they should talk!)
For example, NFCU has a 7-year at 4.25%. If you're already an account holder here, it's pretty competitive, especially if you have lower-yielding CDs that can be converted without EWP under NFCU's unadvertised policy. The monthly cash flow difference between that and the highest current offers with 5/7 year terms isn't that much.
Which is to say hang on, stay liquid, the yield curve will uninvert and long term rates are going to go higher. :)
Have you asked Navy FCU the following:
1. Can I transfer 3.5% to the 12 month cd @ 4.45%?
2. Can I transfer 3.5% to the 12 month easystart cd @ 4.35%?
3. Can I transfer 3.5% to the 24 month cd 4.25%?
4, Can I transfer 3.5% to the 24 month easystart cd @ 4.15%?
If you transfer to any of the terms above, it is a new cd and you can close it in 7 days with a minimum EWP of 7 days interest(dividends) or you can keep it open. As always, if you want to close a cd ask for the closing withdrawal amount and then decide if you want to close it.
FYI. The 7 day early withdrawal penalty is described on the disclosure under Brochures and Disclosures. How are you staying liquid on these funds at Navy FCU @ 3.50% for 18 months remaining? The opportunity to transfer the funds to a new CD and close with a 7 day EWP is available now. At that time, the funds would be liquid. Navy FCU may take away the current opportunity to convert these funds.
If you are waiting for year over year inflation to drop to under 2% to lock in long term rates, 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 which should lower long term rates banks are offering.
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%)
That said, inflation is still a concern and we will know in the next 3 months if inflation is a 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.
The January CPI-U numbers will be posted on Feb 14. The December CPI-U number was 296.797. So if JAN number is any where around 297.887 or lower (0.37% month over month from December number), then I think we are in line with inflation numbers heading to pre-pandemic levels by summer. That would put the last 7 months real yearly inflation rate at 0.91%.
Seems early on supply chain issues (especially China), high fuel prices, and excess free government handouts fueled much of the inflation. The handouts are gone now and won't be coming back, the supply chain issues seem to have disappeared or have gotten much better especially with China now getting rid of COVID zero policy, and energy prices have come way down off their peak and they not only drive pump prices but the price in everything we purchase. Inflation basically stalled after oil prices peaked in June which happens to be when we went into basically zero inflation for the last 6 months.
EIA reported retail gas prices on 12/26 were $3.091 and on 1/30 were 3.489 or up 12.9% in one month. Oil prices on 12/30 were $80.26/barrel and on 1/31 were $78.87/barrel, down 1.73%. Energy makes up 7.9% of CPI-U inflation numbers.
If the fed tries to drive us into recession to kill perceived future inflation, oil prices will plummet even more. Remember during COVID when Oil futures went negative? I think where oil and gas prices go, so will inflation. But my biggest concern for inflation getting heated is the tight employment market driving wages higher. Hopefully that will be curtailed.
All IMO, Steve