Short-term rates: Room to run?
By Laura Bruce • Bankrate.com

Fixed-income savers have been enjoying reasonably decent yields on their short-term savings lately after suffering through three years, ending in November 2004, when the fed funds rate languished at 2 percent or less.

Since then, it's been a painstaking climb. As the Federal Reserve's Open Market Committee doggedly increased the fed funds rate by 25 basis points every time it met, some financial institutions kept pace by boosting rates on high-yield money market and savings accounts, and high-yield short-term certificates of deposit, or CDs.

Current yields on those products are closing in on 5 percent, and that's encouraging many people to eschew the stock market and park a significant portion of their assets in safe investments that let them sleep at night.

Bill Martin, age 29, is a recent law school graduate who lives in New York with his wife. He's hoping they'll be able to buy a home in a couple of years and doesn't want to gamble his savings in the stock market. For now, he prefers to keep his money in high-yield savings accounts.

"It's not that I need so much money to be liquid. I probably have more in a savings account than I should, but with the interest rates it's not a bad place to put your money. If stocks historically return 8 percent or 9 percent annually, that's obviously better than a savings account, but it also carries more risk. I don't know where the market will be in two years, but with these interest rates we can build a nest egg."

Martin and other savers are hoping short-term rates will continue to rise or at least hold the fort for a while, before they, almost inevitably, start to fall. While the heady days of 8 percent may not return, perhaps in the not too distant future those who are willing to shop around will be able to lock in 6 percent for a few months.

Short-term rates depend, in part, on the Fed, and speculating about Fed moves is risky business. Nevertheless, we asked some intrepid experts to give us their educated guesses about the economy, the Fed and where they think interest rates are headed.

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The economy
"Forward-looking indicators say it's firing on all cylinders. We should have at least six months of growth, which bodes well for the stock market. At this point everything seems to be in check. I don't think there will be a recession. There doesn't seem to be anything looming out there that would cause us to go down the other side of the mountain. Most of the heavy lifting was done by (former Federal Reserve Chairman Alan) Greenspan."

The Fed
"I'm expecting another move, maybe two, and somewhere around 5 percent (fed funds rate) they're going to quit. That should happen within the next six months. They're watching wages and order backlogs. (A high employment level) can put pressure on wages.