CD Rate Trend Index

With oil and food prices surging, Fed policymakers are now becoming more cognizant of the fact that inflation poses a larger threat to our economy than initially thought. Bernanke is eventually going to be forced to combat pricing pressures by raising interest rates, as they pose perhaps the largest threat to our weakening economy. Short-term interest rates should remain stable for a period and then begin to increase as the Fed tries to avoid retracing the steps it made during the '70s and early '80s when the overnight lending rate soared to 20 percent. During uncertain and volatile times, flexibility can be your greatest resource. As investors wait for rates to stabilize and eventually move higher, they should continue to consider avoiding longer term maturities.
Kurt J. Rossi, CFP, CRPC, LPL Financial Advisor, Independent Wealth Management, Wall, N.J.

By this time next year low rates will be but a memory as the Fed continues raising rates to combat the inevitable and substantial inflation increases that we will learn to live with.
Benjamin Tobias, CFP, Tobias Financial Advisors, Plantation, Fla.

Short-term will be down due to increasing downward pressure by the Fed rate cuts. Long term rates will hold flat for now due to the weakened dollar, allowing net exports to remain high amid our low consumer confidence environment (which slows consumer spending). As the weakened dollar gains strength, the long term rates will begin to increase due to resulting inflationary pressure. The weakened dollar allows our export sales to stay strong. When this trend shifts, the dollar will strengthen, export sales will slow and inevitably inflation will rise -- as will rates.
Mark C. Connell, CFP, CSA, president Mark-Christopher LLC, Addison, Texas

The Federal Reserve and U.S. Treasury have provided massive amounts of liquidity to the financial system to help unlock the credit markets. Their concern now is over-stimulating the economy since there is a natural lag between when they take action and it filtering through the economy. When you add commodity inflation and tax rebate checks to this equation, the path of least resistance is up for most CD rates.
Herbert G. Hopwood III, CFP, CFA, president Hopwood Financial Services Inc., Great Falls, Va.

Stay short (for now) with your fixed income commitments. The bond market has been pricing in an end to the Fed's recent aggressive rate cutting process. Given the magnitude of this year's Fed rate cuts and the speed at which they moved lower, we are likely to see a pause from further downward adjustments. Be patient and look for higher rates to avail themselves as we move through the second half of the calendar.
N. Barry Vosler, CFP, Linsco/Private Ledger, DeWitt, Iowa

The Fed is walking on the razor's edge. The US economy, if not in a recession, is near one. Under normal circumstances one would expect the Fed to continue to lower rates to help stimulate the economy. However, each time the rates are lowered the dollar falls and commodities, especially oil, rise in price. This not only puts pressure on inflation, the diversion of consumer dollars to more expensive oil and now food is starting to spread to other areas of the economy. Retail is starting to suffer. And (the effect) may soon be seen on higher-end spenders. Last Friday we went to one of the best French restaurants on Long Island. The food was excellent as usual, the price was as high as usual. However, on a Friday night in April, we were the only table seated in the whole restaurant. Although this observation is anecdotal at best, it does suggest that the consumer is pulling back. More importantly even with all of the Fed's work the credit crisis may not be over. Until we move through an entire quarter without another credit crisis surprise, lending will be tight, interest on fixed income investments will be low, and inflation is starting to hurt. A fixed income investor will most likely, in the near future, be subject to a negative real return. I believe that oil and therefore food prices are rising due to weakness in the dollar; not based upon direct supply and demand issues. Therefore, until the Fed shows that they are near the end of lowering rates there will be little to look forward to for fixed income investors.
Michael Kresh, CFP, M.D. Kresh Financial Services, Islandia, N.Y.

The Fed will most likely focus on inflationary pressures for the remainder of the year. This could very well mean an increase in rates this fall. Current policy is aimed at creating liquidity for the credit markets. This has lead to lower interest rates and higher credit spreads between the highest quality and riskiest corporate borrowers. Low interest rates reflect low growth expectations while high spreads show extreme risk aversion. Due to inflationary pressures, I anticipate higher yields in our near future.
Steven Lautenschlager, CFP, vice president First Business Trust & Investments, Appleton, Wis.

The Fed's biggest concern at this point is maintaining its relevance. As the economy continues down this mushy path, it has to be vigilant in maintaining a perceived influence on economic events. Once the notion arises that the Fed is wearing no clothes, (that its power in this dour economic environment is as much symbolic as actual) we will all be facing the 'bare' facts. Influence wanes at the extremes.
Daniel Wishnatsky, CFP, Special Kids Financial, Phoenix

Savers could see a short-lived bump in CD yields, following the move of Treasury yields over the last five weeks. But blink and you'll miss it.
Greg McBride, senior financial analyst, Bankrate.com

Savers may soon be able to climb out from under the bus that the Fed tossed them under months ago, but it'll be a long time before the bruises go away. After a little more downside, rates may stablilize for a while if the economy doesn't turn aggressively worse. But it could be quite some time before we see CD rates reverse course.
Laura Bruce, senior reporter, Bankrate.com