Key Economic News Out Later This Week May Send Rates Higher in 2014

There are a slew of economic reports due out later this week which will have an impact on interest rates in the future. In addition to these key reports, the Federal Reserve is having their two day meeting on economic policy. The FOMC is releasing their post-meeting statement at 2:00 pm on Wednesday.

The FOMC isn't expected to drop any bombshells in their statement of policy but any slight change in wording regarding rates increasing will send bond yields higher. The next big day for news is this coming Friday. The key report to watch is the nonfarm payrolls for the month of July. Analysts are expecting 250,000 jobs created and the unemployment rate to remain at 6.1 percent.

The unemployment rate is likely to fall from 6.1 percent down to 6.0 percent or possibly below 6.00 percent. The closer the rate gets to "full employment," which the Fed has pegged between 5.2 percent and 5.5 percent, the more likely rates will increase. When we have reached full employment, wage pressures start to increase which in turn sends inflation higher.

The Fed has to stay head of the inflation curve so the slightest hint of higher inflation will cause the Fed to increase the federal funds rate. The current fed funds rate is near zero percent. The rate is so low right now the Fed will have be very aggressive when increasing the rate to get to a neutral point.

When the rate is increased, banks will follow suit by increasing deposit rates. Right now, the best savings account rates are at 0.95 percent and the best money market rates are at 1.01 percent. If rates do move higher in 2014, we could see the highest savings rates and money market rates at 1.25 percent to 1.50 percent.

By the end of 2015, deposit rates will be much higher than current levels. On the high end, variable interest rates will move above 2.50 percent and could be as high as 4.00 percent. Current savings rates and money market rates are as follows:

Top Savings Rates