Will the Fed Cut Rates Next Week? This Tool May Reveal the Answer

Introduction to Fed Rate Cuts

When it comes to understanding where bank savings rates are headed, it all comes down to what the Federal Reserve does next. The Fed’s benchmark rate directly influences how much banks and credit unions pay on savings, money market, and certificate of deposit (CD) accounts. Recently, there has been a significant shift in market expectations regarding the Fed’s next move.

What’s Changed in the Outlook for Fed Rate Cuts

Less than two weeks ago, markets were betting the Fed would hold its benchmark rate steady at its last meeting of the year, pausing after quarter-point cuts in both September and October. However, the odds have flipped, with a strong majority of traders now predicting the central bank will make one more 2025 rate cut, at the conclusion of its Dec. 9–10 meeting. This volatility in Fed predictions stems from several crosscurrents, including delayed key economic data releases due to the government shutdown, mixed signals from the job market, and higher inflation.

Key Factors Influencing Fed Decisions

The latest pivot was triggered by public comments from a key Fed policymaker, who expressed openness to a December cut. This quickly shifted sentiment and pushed market odds back in favor of a quarter-point cut at the next meeting. The Fed’s decisions are influenced by various factors, including economic data, inflation, and growth. As a result, market expectations can change rapidly, making it essential to stay informed.

How a Rate Cut Could Affect Your Savings

If the Fed announces another rate cut, yields on savings and CD accounts will likely decrease. This means that the cash you keep in a savings or money market account will earn less if your bank trims its APY in line with a Fed cut. CD rates on new accounts would also dip, although existing CDs would maintain their fixed rates. Despite potential slippage from the 2023–2024 highs, returns remain historically strong, with top high-yield savings accounts offering mid-4% APYs and some reaching 5%.

Impact on Savings and CD Accounts

Even with some slippage, today’s best high-yield savings accounts and CDs remain attractive. To secure a better yield, consider opening a CD before a potential Fed cut. By doing so, you’ll likely lock in a higher rate than you would be able to earn later. While there’s nothing you can do to shield a savings or money market account from falling yields, timing matters when shopping for a CD.

How to Track Rate-Cut Odds

The CME FedWatch Tool allows you to track rate-cut odds in real-time, just like financial professionals. This tool shows the probabilities traders assign to different rate outcomes at upcoming Fed meetings. By using the CME FedWatch Tool, you can stay informed about market expectations and anticipate how savings and CD rates might move next.

Using the CME FedWatch Tool

To use the tool, simply click on the tab for the scheduled Fed meeting, and you’ll see the market’s current odds for various rate scenarios. The chart indicates the current target range and compares it to potential new ranges. The bars move constantly, sometimes inching higher or lower with daily headlines, and other times swinging sharply after fresh data or Fed commentary. Checking the chart regularly is the easiest way to understand Fed expectations and anticipate how savings and CD rates might move next.

Conclusion

In conclusion, the outlook for Fed rate cuts has changed, with markets now seeing a December rate cut as more likely than a pause. This shift in expectations can impact savings and CD rates, making it essential to stay informed. By understanding the factors influencing Fed decisions and using tools like the CME FedWatch Tool, you can anticipate how savings and CD rates might move next and make informed decisions about your finances.