Are Low Feds Rates Unfair For CD Owners?

All investors and senior citizens who have chosen to invest their savings in Certificates of Deposit have been frustrated with the low rates that the Fed has set in the market. It results in a low yield for them and at times, makes them regret their decision to invest in any 2, 3 or 4 year CDs.

It is the responsibility of the Federal Reserve to control the rates and reach goals of maximum employment, moderate and long term rates, along with stable prices. One of the reasons that the Feds may give for avoiding the long promised rate hike, is that they want to achieve all their goals.

So it becomes important to assess if the Feds have reached any of their set targets, and how long it will take them to meet them and finally decide to increase the rates, which would have a positive impact on the yield collected from CDs.

To analyze the set goals of the Feds, there are some criteria that need to be fulfilled. The Federal Reserve sets a target for maximum employment by fixing a range for natural unemployment. In 2012, the Feds set the short term unemployment rate to 6.5%, as part of their efforts to keep the rates near 0%. The unemployment rate at that time was 7.9%, and has now been calculated to be 5.3%. So the employment levels of today are effectively meeting the definition of maximum employment.

Furthermore, to talk about other targets of the Feds, the prices are quite stable due to the low inflation rate, and the CPI has been calculated to be 0.2%. The CPI rates calculated without the volatile energy and food section is 1.8%.

The 30 year treasury bonds are paying investors 3.15%, while the long term interest rates are quite low. These details display that the Feds have actually met their targets and can now ponder over the decision to raise the interest rates.

Individuals, who have invested in Certificates of Deposit over the past few years, have suffered from poor yield over the years. This trend in yield has put off many investors who were considering buying CDs but opted for other financial options as a result of the volatile market condition. With the uncertainty concerning whether the Federal Reserve will raise the rate or not in the upcoming months, many conservative savers are confused about the decision to make when it comes to buying and investing in Certificates of Deposit.

The decision of the Federal Reserve to meet its promise of raising the rate is the one thing which will govern the investments in CDs in the future.