There seems to be a groundswell of support for raising interest rates sooner rather than later — and one of the Federal Reserve’s own bigwigs is leading the charge.
That’s the message coming out of the Federal Reserve Bank of Kansas City this week, where director Thomas Hoenig has gone out on a limb — at least inside the Federal Reserve — in calling for a short-term rate hike to 1%. The Fed’s short-term benchmark rate is at 0.25% right now.
A rate hike would be manna from heaven for bank savings investors. Right now, the average national certificate of deposit rate on six-month CD’s, as measured by the BankingMyWay Weekly CD Rate Tracker, is a measly 0.492%.
Savings rates aren’t any better. The BankingMyWay National Savings Rate Tracker pegs the national average for bank savings rates at 0.214%.
Any uptick in interest rates would no doubt raise bank deposit rates, as well — a scenario that would please bank rate investors who have taken a pounding, return-wise, in the bank deposit marketplace over the past 18 months or so.
Hoenig let the cat out of the bag at a speech earlier this week in Bartlesville, Okla., when he said the Fed should “be prepared to raise” benchmark rates to 1% by Labor Day. He also called for ending the “extended commitment” to near-zero-based interest rates, a bedrock platform for the Fed during the Great Recession. The Federal Reserve is keeping rates that low to spur credit and spending — with mixed results to date.
Honeig is a bit of a maverick at the Federal Reserve — his has been the only dissenting opinion in favor of higher interest rates at the past three Fed meetings. But this time he has some tepid support from his Atlanta Federal Reserve Bank counterpart, Dennis Lockhart, who said this week that “the time is approaching” for higher rates, even if “unacceptable levels of unemployment” continue to slow economic growth.
That’s certainly the case now, as the U.S. Labor Dept. reported this morning that only 41,000 private sector jobs were added to the U.S. economy in May — a paltry number given the many economists and politicians who have assured Americans that an economic recovery is underway.