Inflation Picks up Steam – Are Higher CD Rates on the Way?
Two economic reports were released this morning showing that the economy is gaining momentum. This may send CD rates higher sooner than later. These two reports coupled with a stronger than expected April Employment report could force the Fed to increase rates before the summer of 2015.
The number of Americans filing unemployment claims fell to 297,000 for the week ending May 10. Analysts were expecting claims to increase to 320,000. This is the lowest level for claims in over 7 years and brought unemployment claims back to the pre-recession level. The Labor Department also announced its Consumer Price Index increased 0.3 percent last month, which is the largest increase since June 2013.
For the 12 months ending in April, consumer prices have risen 2.0 percent, which is near the target level the Federal Reserve has for long term inflation. If inflation increases to 2.5 percent this year, the Federal Reserve will be forced to increase the federal funds rate sooner than they have forecasted.
Once the Fed increases the fed funds rate, credit unions and banks will increase deposit rates on savings accounts, money market accounts and certificates of deposit. This will be welcome news since we have dealt with record low deposit rates since the recession. The best CD rates on 12 month certificates of deposit are just above 1.00 percent. This is a far cry from the 3 percent to 5 percent rate that most banks offered before the recession.
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