As expected, the Federal Reserve announced another rate increase on March 15, 2017. The reaction by bank and bond rates to the Feds rate move was somewhat fickle. While some investors are becoming increasingly worried that the long trend of lower bank rates has been reversed, the impact in the bond and interest rate markets regarding the Fed announcement was mostly muted.
The top yielding bank certificate of deposit rates moved marginally higher following the ¼% rate increases put forth by the Federal Reserve. But, with the fed funds rate change already baked into the market, the bond market barely budged after the Fed announcement. In fact, bond yields did not move in conjunction with the top CD rates and were mostly lower shortly after the Fed ratcheted up short term interest rates.
At the close of business on the day of the fed funds rate increase, the six month Treasury bill dropped to 0.89% from 0.93% the day before. The one year Treasury rate declined to 1.02% from 1.06%. And the ten year Treasury bond gave up nine basis points or 0.09% to end the day at 2.51%.
Average yields on most bank CDs didn’t match the dip in Treasury bond yields but also didn’t follow high yielding CDs. Bank CD rates were little changed, on average, after the Fed announcement. The average rate on a six month bank CDs, one year bank CDs, and five year CDs were all unchanged after the Fed’s rate increase. The six month rate held at 0.14%, one year rates were unchanged at 0.24%, and the five year remained at 0.79%. (Average bank rate data obtained from the FDIC, www.fdic.gov/regulations/resources/rates)
Of course, not all bank CD rates are created equal. The top performing CD accounts did experience a mild uptick during the week that ended March 17, 2017.
The top ten highest six month CD rates inched closer to the 1.00% yield mark with average rate reaching 0.959%. The best one year CD rates also inched higher with the average yield climbing to 1.379%. Two year CD rates were mostly unchanged with an average rate of return of 1.563%. Long term, five year CD rates, also moved to the upside with the average interest rate hitting 2.126%.
Wednesday’s rate hike was widely expected, stock and bond investors watching the Fed news were looking for clues about just how aggressive the central bank may be in the near future. Information supplied by the Fed indicated that there will be three more rate increases in 2017.
Some observers may consider the projected rate increase as an aggressive position by the Fed but big institutional investors looked at the Fed’s stance as not particularly assertive and even moderately dovish.
A dovish position by the Fed combined with very little hard evidence of overly strong economic growth in the U.S., is helping to keep a lid on bank rates.
More information on the banks and bank rates in the current rate survey conducted by SelectCDrates.com can be found at the following top ten lists: three month CD rates, nine month CD rates, three year CD rates, and four year CD rates.