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Upcoming Federal Reserve Interest Rate Decision: Expectations and Implications

Key Takeaways

The Federal Reserve is set to announce its interest rate decision next Wednesday, with widespread expectations that rates will remain unchanged. However, this does not imply that bank deposit rates will stay the same, as the Fed will also issue its rate projections for the remainder of the year. Current financial market analyses reflect about a 90% likelihood that the federal funds rate will decrease by at least 0.5 percentage points by December, with many forecasting the first rate cut of 2025 to take place in June. Typically, savings account rates align with actual federal funds rate adjustments, while certificate of deposit (CD) rates often adjust in anticipation of such changes. Consequently, insights from next week’s Fed forecast could lead to an immediate decline in CD rates—making it a prime time for consumers to secure favorable CD rates.

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What to Expect from the Fed’s Meeting Next Week

The Federal Reserve convenes every few weeks to assess the economic landscape and make decisions regarding the federal funds rate—a critical benchmark that influences interest rates on savings accounts, money markets, and CDs.

The upcoming rate decision is anticipated to be announced next Wednesday afternoon. Current economic indicators suggest a 97% probability that the Fed will maintain the existing federal funds rate, mirroring their stance from the last meeting. This consensus means that a shift in rates is not expected in the immediate future.

However, an important element of this meeting will be the release of the Fed’s “dot plot,” which offers insight into the anticipated direction of interest rates over the coming year. This quarterly forecast is highly awaited, with the previous dot plot disclosed in December 2024.

While the exact projections remain uncertain until their unveiling, market speculation currently indicates a strong likelihood—nearly 60%—that by year-end, the federal funds rate could decrease by 0.75 percentage points. Such a change would likely manifest through three incremental decreases across the remaining Fed meetings scheduled for the year.

As for expectations regarding the initial 2025 rate cut, most forecast it could occur during the June 18 meeting. For the upcoming May 7 session, the likelihood of maintaining the current rate remains above 80%.

Anticipated Reactions in Savings and CD Rates

With the Fed likely to announce no changes next week, immediate alterations to savings account rates are not anticipated. Banks and credit unions generally reserve the right to adjust their savings rates at will, often choosing to hold off on rate reductions until definitive Fed actions occur.

Nonetheless, it is important to note that high-yield savings account offers can change at any moment. However, based on current trends, the anticipated Fed decision is not expected to cause significant fluctuations in the annual percentage yields (APYs) for leading high-yield savings accounts.

CD rates, however, tend to be more reactive to Fed signals. Given that CDs provide a future rate guarantee, banks are less inclined to commit to rates they might later regret. Therefore, institutions may adjust their CD offerings in anticipation of Fed movements, particularly when they have high confidence in the Fed’s future decisions.

The implications for CD rates next week largely depend on the Fed’s future rate outlook indicated in the dot plot. If policymakers endorse the markets’ expectation of three quarter-point cuts this year, financial institutions might proactively lower CD rates accordingly.

Conversely, if the Fed suggests a more conservative outlook with fewer anticipated rate cuts in 2025, it could result in banks delaying reductions in their CD rates until more certainty is established.

Complicating matters are external factors, such as trade tensions and tariff policies stemming from the current administration, which could impact economic metrics like inflation and potentially influence the Fed’s strategies. The Fed remains vigilant, prepared to adapt its approach based on the latest economic developments.

Strategic Financial Moves for Savers

Given the prospect that rates may remain stable in the near term but eventually trend lower, it is advisable for consumers with idle cash in underperforming accounts to consider transferring their funds to a high-yield savings account. By doing so, they can exploit monthly interest accrual that translates into additional earnings. Transitioning to accounts that currently offer yields of up to 4.60% is prudent to maximize savings potential.

Additionally, for those willing to lock in their savings for a set duration, exploring current high-rate CDs is a sound strategy. A CD opened now guarantees a fixed return, providing financial security for the future. With options available at rates ranging from 4% to 5% for terms spanning 3 months to 5 years, a notable offering currently stands at 5.00% APY for 18 months, ensuring a return until September next year.

Delaying action may not be wise considering the more probable scenario of decreasing rates. As such, moving funds into a high-yield savings account now is recommended for those looking to maximize returns while favorable rates are available. If considering a CD, it is crucial to act swiftly, as prime offers may vanish quickly.

Daily Rankings of the Best CDs and Savings Accounts

Methodology for Identifying Top Savings and CD Rates

Each business day, Investopedia evaluates rate data from over 200 banks and credit unions offering CDs and savings accounts across the country, establishing daily rankings of the most competitive accounts. To qualify for these rankings, institutions must be federally insured (FDIC for banks, NCUA for credit unions), and initial deposit requirements cannot exceed $25,000.

Banks must have accessibility in a minimum of 40 states. Furthermore, while some credit unions may impose a membership fee linked to charitable donations or specific eligibility criteria, our guidelines exclude those requiring donations exceeding $40. For a more in-depth look at our criteria for selecting the best rates, refer to our comprehensive methodology.

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