FOMC’s September Meeting Still the Launch Date for Higher Deposit Rates

The stage has been set for higher deposit rates in September. The Federal Open Market Committee (FOMC) is scheduled to meet on discuss monetary policy, including setting the federal funds rate, on September 16 and 17. Most Fed watchers believe Fed officials will vote for a 25 basis point increase during the September meeting.

The current fed funds rate has been in a targeted range of zero percent to one quarter percent. A 0.25 percent increase will send the best savings rates towards 1.50 percent. The best savings rate available right now in our database is at 1.25 percent from My Savings Direct.

The best money market rate available in our database right how is at 1.10 percent from iGObanking. A 0.25 percent increase in the fed funds rate will send the best money market rate also towards 1.50 percent. The best 1 year CD rates currently at 1.25 percent will also move towards 1.50 percent.

There is a chance the FOMC will hold off on a September rate increase. Between now and September two more jobs reports will be released. Any weakness in either report might force the FOMC to wait until October's meeting for an increase.

Other factors that might force the FOMC to wait include the debt issues in Greece or the relentless selloff in Chinese stock market bubble busting. Either of these factors will only have a temporary effect on U.S. markets and interest rates.

FOMC's Projected Federal Funds Rate

During the FOMC's June meeting committee members voted on when the time was appropriate for a rate hike. 15 members believe a rate hike will be warranted in 2015, while 2 members believe 2016 will be appropriate. The 2015 projections are as follows:

2015 Fed Funds Rate Projections

• 2 participants project the rate will remain at 0.125 percent
• 5 participants project the rate will be at 0.375 percent
• 5 participants project the rate will be at 0.625 percent
• 5 participants project the rate will be at 0.875 percent

The fed funds rate at 0.875 percent will send the highest savings rates and money market rates above 2.00 percent.

Looking towards 2016 the fed funds rate is projected to go even higher. Rate projections are all over the place but all projections are higher from the current level. The good news is, a higher fed funds rate will be higher deposit rates. The bad news is, a higher fed funds rate will also mean higher mortgage rates. The 2016 projections are as follows:

2016 Fed Funds Rate Projections

• 1 participant projects the rate will be 0.375 percent
• 1 participant projects the rate will be at 0.875 percent
• 1 participant projects the rate will be at 1.125 percent
• 4 participants project the rate will be at 1.375 percent
• 3 participants project the rate will be at 1.625 percent
• 1 participant projects the rate will be 1.875 percent
• 1 participant projects the rate will be 2.125 percent
• 1 participant projects the rate will be 2.25 percent
• 1 participant projects the rate will be 2.375 percent
• 1 participant projects the rate will be 2.625 percent
• 3 participants project the rate will be at 2.875 percent

The fed funds rate at 2.875 percent will send the highest deposit rates towards 4.00 percent or even possibly above 4.00 percent. The last time variable deposit rates were around 4.00 percent was just before the financial crisis and Great Recession of 2007/2008.

When interest rates move higher is anyone's guess but rates will be going up. Therefore you should position your financial portfolio for higher rates for the next 3 to 4 years.