Certificate of deposit rates fell last week, despite good news for the economy.
Rates were down across the line, with the three-month CD falling from 0.281% to 0.258%, and the five-year CD down from 1.799% to 1.755%, as measured by the BankingMyWay Weekly CD Rate Tracker.
Long-term, it might be time to start thinking about a rate environment where CDs are going up. The latest economic news would suggest just that.
To start, the August inflation rate rose 0.3% according to the Commerce Department, which not only eases deflation concerns, but also sets the stage for higher CD rate activity. Deflation is a real economy killer, cutting into business revenues and reducing profits. When it takes hold, companies tend to either layoff employees or at least hold employment levels steady.
Of course, that doesn’t mean inflation is rampant — it just means that the inflation rate is high enough so that deflation won’t be such a big concern. During the past 12 months, inflation has checked in at 1.1%, slightly down from the 1.2% rate over the previous year.
But if the September and October numbers also show an increase like August, it’s a likely sign that prices are rising, and that bank rates might rise along with the rest of the economy.
The other big piece of economic news hasn’t actually happened yet. The Federal Reserve meets today and is expected to keep interest rates right where they are now. The Federal Reserve’s Open Markets Committee sets the pace of national interest rates, and over the past few years has kept rates near 0% to spur lending and spending.