The Federal Reserve has decided to hold off on raising interest rates — for now. Instead of raising rates for the 11th time in 15 months, they’ve decided to skip a rate hike. However, many experts expect at least another rate increase before the year is through. This all could have an impact on your savings account rates.
Michele Raneri, vice president and head of U.S. research and consulting at TransUnion told Kiplinger, "This skip is a likely indicator that the Fed wants to give the previous hikes time to have an observable impact, specifically on inflation. It remains to be seen what happens in months to follow, but for June at least, borrowers could see somewhat of a stabilization of rates across a range of industries, in particular, mortgage and credit card."
Last month, the Federal Reserve raised rates by 25 basis points, or 0.25%, bringing the short-term federal funds rate to a target range of 5.0%-5.25%. This marked the 10th consecutive rate increase since March 2022, when the Federal Reserve began increasing interest rates in an attempt to combat high inflation, which peaked at 9.1% last year.
According to the Bureau of Labor Statistics, in May, the Consumer Price Index grew at an annual rate of 4%, the slowest pace in more than two years. However, it’s still far from the Federal Reserve's target rate of 2%, so even though interest rates have been raised to the highest level in 16 years, they're likely to go up again next month.
“The slower rate of inflation, which came in below economists' expectations, should theoretically give the Federal Reserve room to pause its long campaign of interest rate hikes,” reports Dan Burrows, Kiplinger senior investing writer. “But experts say the CPI report doesn't exactly give the Fed a slam-dunk case for putting rate hikes on permanent hold.”
Instead, the Federal Reserve’s decision to hold off on raising interest rates this month, is likely just a “skip,” not a pause. “A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” said Federal Reserve Governor Philip Jefferson at a conference in Washington, D.C., earlier this month.
“Indeed, skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming.”
What does the Fed’s decision mean for savings rates?
When the Fed raises interest rates, typically rates on savings accounts also go up. Therefore, savings rates have been on the rise since the Fed began hiking interest rates last year, with many accounts offering impressive rates.
In fact, some of the top earning high-yield savings accounts, money market accounts and CD accounts are offering rates over 4%, and in some cases, 5%. Use the below tool — powered by Bankrate — to compare rates on high-yield savings accounts, as well as CDs, today.
The Federal Reserve’s decision to skip a rate hike this month means that for most savings accounts, you’ll likely be able to maintain your current savings rates. If rates do increase next month, as many experts believe they will, then savings rates could go slightly higher.
However, as inflation starts to cool, it’s a good idea to take advantage of savings rates while they remain high. Rick Valenzi, CFP, founder of Financial Zen told CBS, "Rates will likely come down over the next 12 months and could go lower if the Fed pauses or starts to signal that they might actually be done raising."
