Federal Reserve Raises Fed Funds Target Rate to 2 - 2.25%

Federal Reserve Raises Fed Funds Target Rate to 2 - 2.25%

The Federal Reserve voted unanimously today to move the Federal Funds rate up by 25 basis points to 2 to 2.25%.

BestCashCow had predicted this move for some time.   By late last week, economists polled by various polling services had all moved to a position of over to 90% likelihood of this move.   It was very well telegraphed by Federal Reserve Chairman Jerome Powell. 

As a result of this move, we will see higher online savings rates.    You will also likely see more competitive local savings rates from banks and credit unions in your area.

We may also see a rise in CD rates, including online one-year CD rates and local one-year CD rates.

The Fed continues to be very hawkish.    We predict another rate move in December and several next year with 12 of 16 Fed members now forecasting this 4th hike for 2018.  

The Fed Funds’ long term target remains at 3.375% for 2020 and 2021.   Today, it raised its long-term "neutral" target to for years beyond 2021 to 3% from 2.90%.   Hence, we would continue to be very cautious about long-term CDs.

The Fed may need to move faster and harder than its now hawkish predictions.   Inflation is going to come as a result of Trump’s trade battles and China tariffs.   It isn’t just a premonition.  In fact, I saw a hawk today during my morning bike ride in Central Park.  In 20 years of riding my bike there, this was the first time seeing one on my morning ride.  It must mean something.  (He or she is shown on the picture).

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.
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