SAN ANSELMO, Calif.-Signs that deposit rates have bottomed out and are set to move upward indicate the Federal Reserve may be preparing to hike interest rates within the next 12 months.
That is the analysis of Dan Geller, EVP at Market Rates Insight, who sees the U.S. nearing the turning point in deposit rates based on the company's monthly analysis. "May or June may represent that turning point, which means that we may see a gradual increase in the national average rate for deposits in the second half of this year followed by a likely increase in the Fed funds rate by mid-2014."
Geller said analysis from Market Rates Insight shows that twice in the past 20 years the Fed initiated a cycle of decrease and increase in the funds rate. In both cases, the Fed increased the funds rate by 25 basis points 12 months after the national average rate of deposits reached its turning point.
"The first incident occurred in April 1993, when the national average rate hit a turning point at the 0.00 variance mark (at 2.28% actual APY) while the Fed funds rate stood at 3.25%," explained Geller. "Once the national average rate of deposits started increasing after the April turning point, it took the Fed exactly 12 months (March 1994) to boost the funds rate by 25 BPs-from 3.25% to 3.50%. While the April 1993 rates look very high by today's standards, this actually represented a very sharp decline in rates relative to the Fed funds rate of 8% experienced a few years earlier. A very similar pattern occurred in August 2003."
