Jerome Powell has been testifying in front of Congress for the last two days. You have no doubt heard snippets of his testimony on the evening news or in the financial media. Of note, if Trump calls him to fire him, he will say “no, … the law clearly gives me a four year term and four year term and I fully intend to serve”.

However, when Powell is done playing tough guy and testifies about his view of the economy, it is in fact clear that his views have evolved and he is succumbing to Presidential harassment.

Powell is a student of the economy and he believed when he came to be Federal Reserve Chairman that a neutral Fed Funds rate would be just under 3%. In fact, this time last year, he insisted that his intention was to bring the short term Fed Funds rate temporarily just above 3%. Powell reasoned that with a neutral rate at that level, the Fed would have the bullets to shoot in order to fight the next economic slowdown.

The economic slowdown never came, yet the Fed never got above a near term target between 2.25% to 2.50%. Rather, the President and his allies (Larry Ludlow, etc.) began calling for an immediate cut of as much as one full percentage point. CNBC and Bloomberg became full of pundits (know-nothings) explaining that the Fed had overshot. Even the NY Times editorial board today called for the Fed to cut rates.

Powell is too smart to really believe that we should be cutting rates. But, he is afraid of confrontation, especially with the President. (I, incidentally, believe that the President may have the legal right to fire the Fed Chairman). He, therefore, is testifying about how he is afraid of every economic risk imaginable in order to lay the foundation for cutting rates.

The economic risks that Powell cites are (excluding Brexit) general and always present risks to the economy. They were just as present a year ago when Powell wanted to normalize the Fed funds rate higher than where it is today. Powell knows that.

And so, he is going to sit by and let’s the Republicans try to juice the economy into some sort of unsustainable 3% growth rate over the next year. He has decided that casinos can be fun (perhaps even Trump casinos).

However, by lowering rates right now, Powell just may make the US the new Japan of the last 30 years or Europe of the last decade. We have not had a normalized neutral Fed Funds rate since the 2008 financial crisis; failure to get there and the loss of independence of the Fed are likely to have real consequences down the road.

We have experienced a dramatic fall in interest rates in the US and following the Fed’s most recent meeting in June, CD rates greater than 1-year have come in dramatically. Most recently one-year CD rates and even some online savings rates have begun to fall.

There are three different strategies that you can mix-and-match to continue to earn interest on cash against the backdrop of a likely 25 basis point cut by the Fed at the end of the month.

First, we continue to like No Penalty CDs. We wrote about the benefits of No Penalty CDs over savings rates here. In June, we highlighted the No Penalty CD products of Purepoint, Marcus and Ally. As of this writing, those products are all still be offered with the same rates and minimums. Purepoint continues to have the highest rate for these products at 2.50%, but Marcus has the lowest minimum deposit ($500). [Editor's Note: On the day of publication, Purepoint cut their 13-Month No Penalty CD rate to 2.00%. Depositors should look at the No Penalty CDs offered by Ally and Marcus before considering Purepoint.]

We list all No Penalty CDs and other special term CDs here.

Second, we think that it makes sense to consider locking up money that you will not need in 1-year CDs. Even if the Fed does not lower the Fed funds rate in July since Chinese trade relations may be improving, it is very unlikely that it will raise the rate more than once over the next 12 months. Therefore, we don’t see prevailing savings rates going over 2.70% before the end of June 2020; yet, you can still lock in that rate between now and then at several online banks. To mitigate the risks of rising rates or needing to access your cash, we suggest limiting your CDs to those banks with early withdrawal penalties of 3 months interest or less. As of this writing, there are at least 5 online banks with 3 months early withdrawal penalties that are still offering rates of 2.70% on 1-year CDs.

You can see the complete list of 1-year CDs here.

Third, you can ride this interest rate uncertainty out by staying in savings and money market accounts, but you should fully expect that your interest rate will fall if the Fed lowers the Fed funds rate at the end of the month. You might want to focus new deposits on those banks that are new entrants in the online market (as they will want to stay competitive as long as they are in asset accumulation mode) and those that are keeping their rates high prior to the Fed’s move.

We list all of the best online savings rates here, and you may also want to consider local savings rates and savings and money market offerings from credit unions.

We pointed out in our May and April updates, that the Fed may be on hold for a while. We also suggested that May could be a good time to sell and go away. As we enter June, it looks more and more likely that the economy is heading for uncertain times as a result of unnecessary trade wars with China, Mexico and perhaps others initiated by our autocratic president.

I have highlighted No Penalty CDs in the recent past. As we crossed through May, these became more and more attractive by the day. These products offer the advantage of a higher interest rate and the certainty that the rate will be applied for about a year. At the same time, No Penalty CDs give you the flexibility to access your money without penalty after 10 days should you need the money or should rates rise (which is still a distinct possibility if inflation is an outcome of these trade wars). One disadvantage is that you ordinarily cannot make partial withdrawals, although you can always terminate the CD and reinitiate it provided rates do not fall.

As a result of their flexibility in this uncertain period, No Penalty CDs comprise recommendations 1, 2 and 3 for June.

1. Purepoint – 13-Month No Penalty CD, 2.50%, $10,000 Minimum

Although Purepoint’s rate has fallen by 10 basis points since being initiated earlier this year, even at 2.50%, Purepoint’s No Penalty CD rate matches that of the best online savings account.

2. Marcus – 13-Month No Penalty CD, 2.35%, $500 Minimum

Marcus’s product can be easily set up online, has a lower minimum balance requirement than the others and can be terminated in seven days.

3. Ally – 11-Month No Penalty CD, 2.30%, $25,000 Minimum

Ally’s No Penalty rate is not as competitive as Purepoint’s or Marcus’s, it minimum balance requirement is higher and its term is only 11-months (a longer term is actually better as it provides more protection should rates fall). Yet, Ally makes the list because they have been offering this product for years, and it is super easy to terminate the CD and initiate a new one online should rates rise, should you require a partial withdrawal, or should you wish to extend the end date.

Check out other No Penalty and Special Term CD rates here.

The market for savings and money market products – particularly in the online space – continues to be very competitive and rates have not fallen very much as a result of increased economic uncertainty and the fall in long-term rates. They have not fallen yet. Savings rates are not guaranteed and could change from day-to-day. One strategy to protect your interest rate is to look for new entrants in the online space that are spending a fair amount to gain deposits and are therefore unlikely to slash their rates for some time.

Two new entrants in May that have caught our attention are:

1. Susquehanna Community Bank, 2.53%, $100,000 Minimum
2. BMO Harris Bank, 2.45%, $5,000

While the rates are good, some of these new entrants are so untested that there is some risk to this strategy, and you may wish to wait to see the comments on BestCashCow about some of these banks before opening an account.

See and compare all of the best online savings rates here.

Have a great month.