Where to find top CD yields in the second half as Fed policy remains murky

§ 01 Executive Snapshot

• What: The outlook for yields on savings and CD rates amid uncertain Federal Reserve policy.
• Who: Key players include Bank of America, BTIG, Bread Financial, Citi, Popular Direct, Synchrony, and Happen Bank.
• Why it matters: Understanding the shifts in deposit rates can help investors maximize returns on cash amid a potential rate hike environment.

§ 02 Key Developments

• May's reading of the personal consumption expenditures price index showed an annual rate of 4.1%, the highest since April 2023.
• Fed funds futures indicate a nearly 67% probability of a rate hike in September, according to the CME Group FedWatch tool.
• The average 1Y CD annual percentage yield QTD is up 19 basis points, with new money rates approximately 35 basis points higher than the group average.

§ 03 Strategic Context

• The Federal Reserve's rate policy remains uncertain, influencing banks' decisions on deposit rates, particularly in response to inflationary pressures.
• The trend of banks increasing rates for CDs while lowering them for savings accounts suggests they are navigating competing priorities regarding deposit competition and loan growth expectations.

§ 04 Strategic Implications

• Immediate implications include a potential shift in investor behavior as they seek higher yields on CDs amidst expected rate increases.
• Long-term implications could involve ongoing adjustments in banking strategies as competition for deposits evolves in response to Federal Reserve actions.

§ 05 Risks & Constraints

• Potential risks include regulatory changes affecting interest rate policies or unexpected economic shifts that could alter inflation expectations.
• Competition among banks for deposit rates could also impact profitability, especially if economic conditions change rapidly.

§ 06 Watchlist / Forward Signals

• Upcoming Fed meetings and economic data releases will be critical in shaping expectations for future rate hikes or cuts.
• Monitoring the behavior of banks in adjusting their deposit rates will signal the market's response to ongoing Fed policies and economic conditions.