The Fed Paused Rates, Here’s What It Means for CDs

The Federal Reserve neither raised nor lowered its benchmark interest rate Wednesday meeting— putting neither upward nor downward pressure on the rates banks offer on certificates of deposit. 

The Federal Open Market Committee members kept interest rates at their highest level since 2007, 5% to 5.25%. The Fed funds rate heavily influences interest rates on all kinds of financial products, including CDs.

The Fed has raised the rate 10 times in the past 15 months in an attempt to push inflation lower, which has made banks offer their highest CD rates in years. As of Wednesday, top CDs were offering interest rates of more than 5%, compared to just 1% for the top rate in February 2022 when the Fed’s own interest rate was pegged near zero to stimulate borrowing and lending and boost the economy.

With inflation having fallen from its recent peak last year, Fed officials have grown more hesitant to raise rates because of the risk of sending the economy into a recession. High borrowing costs have held back consumer spending and the housing market, raised the threat of a recession, and exposed cracks in the banking system.

However, inflation is still running hotter than the Fed would like, well over the official target rate of 2%. Fed leaders said they would determine if additional rate raises might be appropriate.

Markets widely expect the Fed to hike its interest rate at least one more time at its July meeting and then start cutting it early next year, according to the CME Group’s FedWatch tool, which forecasts Fed rate hikes based on Fed futures trading data. That means interest rates could still get higher before they get lower.