In a bid to counter inflation, the Federal Reserve has increased interest rates over the past 18 months, which has resulted in Certificate of Deposits (CDs) offering annual percentage yields exceeding 5%, a peak not witnessed in decades. However, the future trajectory of CD rates remains uncertain due to the Federal Reserve's decision to maintain steady rates and forecasts from a recent Bankrate survey indicating that 94% of economists expect rate cuts in 2024.
Analysts suggest that we are approaching peak yields and any additional changes will be minor unless another rate hike is decided by the Fed. Inflation has declined from 9.1% to 3.7%, reducing the necessity for further rate increases by the Fed. The market consensus appears to be that these are the highest rates for this economic cycle, positioning CDs as an attractive short-term investment instrument, despite discouragement against timing investments.
The fluctuating nature of rates observed over the past three years indicates that while there's potential for an increase, there's also a risk of a decline. For individuals nearing or already in retirement, it is deemed an opportune time to secure these high rates for a predictable income stream.
While short-term CD rates are anticipated to remain stable due to the Fed's decision, long-term CD rates may see some upward movement influenced by rising Treasury note yields. Nonetheless, investing in CDs necessitates careful consideration due to penalties for early withdrawal and funds being locked-in for a predetermined period.
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