Fed’s suspended rates, here’s what it means for CDs

The Federal Reserve neither raised nor lowered its benchmark interest rate at its meeting on Wednesday, putting neither upward nor downward pressure on rates offered by banks on certificates of deposit.

Members of the Federal Open Market Committee kept interest rates at their highest level since 2007, from 5% to 5.25%. The federal funds rate strongly influences interest rates on all kinds of financial products, including CDs.

The Fed has hiked the rate 10 times in the past 15 months in an effort to lower inflation, prompting banks to offer their highest CD rates in years. Major CDs were offering interest rates over 5% on Wednesday, up from just 1% for the highest rate in February 2022, when the Fed’s interest rate was near zero to spur borrowing and loans and stimulate the economy.

With inflation falling from its recent peak last year, Fed officials have become more hesitant to raise rates due to the risk of sending the economy into recession. High borrowing costs have dampened consumer spending and the housing market, heightened the threat of a recession and exposed cracks in the banking system.

However, inflation is still higher than the Fed would like, well above the official target rate of 2%. Fed leaders said they would consider whether additional rate hikes might be appropriate.

Markets widely expect the Fed to raise its interest rate at least once more at its July meeting and then start cutting it early next year, according to the CME’s FedWatch tool. Group, which predicts Fed rate hikes based on Fed futures trading data. This means that interest rates could rise further before falling.