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How far will CD rates fall if the Fed cuts rates? Here’s what experts say
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Inflation has been high for years now, and while it’s decreased quite a bit from its peak of 9.1% in June 2022, it’s still below the Federal Reserve’s target goal of 2%. To move the needle and curb spending further, the Fed has kept interest rates paused at a 23-year high at its last three meetings.
While that’s bad for consumers using credit cards, mortgages and loans, as higher rates mean paying more in interest on the money borrowed, it’s a boon for savers, resulting in hefty interest rates on savings accounts and certificates of deposit (CDs).
What goes up must come down, though, and at some point, the Fed is likely to make rate cuts once inflation is under control. While the Fed rate doesn’t directly impact the rates on savings accounts and CDs, the two generally move in the same direction. So the question remains: How long will these high CD rates last? And if the Fed does cut rates, how far will CD rates have to fall?
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How far will CD rates fall if the Fed cuts rates? Here’s what experts say
Here’s what experts have to say about how far CD rates could fall if the Fed cuts rates.
CD rates will fall incrementally in the short term
Experts largely agree that CD rates are headed for a downturn — and that could potentially happen soon. According to the CME Group FedWatch Tool, the Fed may start cutting rates at its upcoming June or July meeting, though that may be less likely with the March inflation rate ticking back up to 3.5%.
When a rate cut happens, experts predict a 0.25-point drop. This should trickle down to CD rates with a roughly 0.25% drop as well, experts say.
“Based on current trends, the Fed is likely to start cutting rates this summer and reduce the target rate two to three times in 2024 — about a quarter of a point each time,” says Stacy Johnson, senior portfolio manager for TIAA. “However, they will adjust as needed if the data and trends change.”
That last point is key, as experts say it won’t be a steep downslide by any means — but rather a slow descent over time.
“The risks are balanced with regard to policy adjustments, and they plan to execute in a measured fashion,” says Jeff Krumpelman, chief investment strategist and head of equities at Mariner Wealth Advisors. “They can cut, but they can take their time doing so.”
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Expect a bigger fall by the end of the year
If inflation trends downward in the future and the Fed stays on track with its three rate cuts, experts say a 0.75-point dip in CD rates is likely on the horizon — at least by the end of 2024.
“It has long made sense that the Fed cut rates three times and by a moderate 75 basis points this year,” Krumpelman says.
Don’t expect those dips to hit all CD terms equally though. Short-term CDs, which are more tightly tied to the Fed’s rate, “will fall far faster than longer-dated maturities,” he says.
They won’t bottom out, though. While experts predict the yield curve will invert later this year or early next — meaning longer-term CDs will once again start paying more than shorter-term ones — short-term CDs should still offer solid rates for those who use them.
“Shorter CD rates won’t collapse and will still offer far higher yields than the ones we experienced in 2021 and prior years,” Krumpelman says. “Even in 2025, we expect short CDs to pay more than 3%.”
The bottom line
With CD rates poised to fall in the future, you may want to open any new CDs you’re eyeing now. This will allow you to lock in today’s higher interest rates and ensure solid long-term returns. Just be sure you have a timeline in mind for when you’ll need the cash, as most CDs come with early withdrawal penalties.
“It’s important to time the CD maturity with your goal of when you need the money,” says Kendall Meade, a certified financial planner with SoFi. While it may seem strange to choose a long-term CD with lower rates, Meade says to remember: You’re locking that in for years.”
If you’re not sure when you’ll need the cash, consider laddering your CDs — or getting several accounts with different maturity lengths. Krumpelman recommends opening CDs “scattered across various years — some coming due in one, two, three, four, five, and six years. This is a moderate approach that minimizes your interest rate risk.”
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In 2000, Malcolm Gladwell published the first of several bestselling books, “The Tipping Point,” in which he applied the laws of epidemics to promote positive social change. Now, he’s returned to that optimistic book’s lessons in “Revenge of the Tipping Point” (to be published October 1 by Little, Brown & Co.), to examine the flip side of those theories.
The new book’s topics range from cheetah reproduction and the Harvard women’s rugby team to the Holocaust.
Read the excerpt below, and don’t miss David Pogue’s interview with Malcolm Gladwell on “CBS Sunday Morning” September 29!
“Revenge of the Tipping Point” by Malcolm Gladwell
Prefer to listen? Audible has a 30-day free trial available right now.
In the 1970s, zookeepers around the world began to invest more and more resources in breeding their animal populations in captivity. The logic was clear. Why go to all the trouble of capturing animals in the wild? The growing conservation movement also favored breeding programs. The new strategy was a big success — with one big outlier: the cheetah.
“They seldom had offspring that survived, and many of them when put together couldn’t breed,” remembers the geneticist Stephen O’Brien, who was then working at the National Cancer Institute.
It didn’t make sense. The cheetah seemed a perfect example of evolutionary fitness: a massive nuclear reactor for a heart, the legs of a greyhound, a skull shaped like a professional cyclist’s aerodynamic helmet, and semi-retractable claws that, as O’Brien puts it, “grip the earth like football cleats as they race after their prey at sixty miles per hour.”
“It’s the fastest animal on earth,” O’Brien said. “The second fastest animal on earth is the American pronghorn. And the reason that it’s the second-fastest is that it was running from the cheetahs.”
The zookeepers wondered if they were doing something wrong, or whether there was something about the make-up of the cheetah that they didn’t understand. They came up with theories and tried experiments — all to no avail. In the end, they shrugged and said that the animals must be “skittish.”
Things came to a head at a meeting in 1980 in Front Royal, Virginia. Zoo directors from around the world were there, among them the head of a big wildlife-conservation program in South Africa.
“And he says, ‘Do you have anybody that knows what they’re doing scientifically?’ ” O’Brien remembers. ” ‘[To] basically explain to us why our breeding program of cheetahs in South Africa has something like 15 percent success while the rest of these animals — elephants and horses and giraffes — they breed like rats?’ “
Two scientists raised their hands — both colleagues of O’Brien’s. They flew to South Africa, to a big wildlife sanctuary near Pretoria. They took blood and sperm samples from dozens of cheetahs. What they found astonished them. The sperm counts of the cheetahs were low. And the spermatozoa themselves were badly malformed. That was clearly why the animals had such trouble breeding. It wasn’t that they were “skittish.”
But why? O’Brien’s laboratory then began testing the blood samples that had been sent to them. They had done similar studies in the past on birds, humans, horses, and domestic cats, and in all those cases the animals showed a healthy degree of genetic diversity: In most species, around 30 percent of sampled genes will show some degree of variation. The cheetah’s genes looked nothing like that. They were all the same. “I never saw a species that was so genetically uniform,” O’Brien said.
O’Brien’s findings were greeted with skepticism by his colleagues. So he and his team kept going.
“I went down to Children’s Hospital in Washington and I learned how to do skin grafts at a burn unit,” he said. “They taught me how to keep it sterile and how to take the . . . slices and how to suture it up and everything. And then we did [skin grafts on] about eight cheetahs in South Africa, and then we did another six or eight in Oregon.”
Winston, Oregon, was home to the Wildlife Safari, the largest collection of cheetahs in the United States at the time.
The idea was simple. If you graft a piece of skin from one animal onto another, the recipient’s body will reject it. It will recognize the genes of the donor as foreign. “It would blacken and slough off in two weeks,” O’Brien said. But if you take a patch of skin from, say, one identical twin and graft it onto another, it will work. The donor’s immune system thinks the skin is its own. This was the ultimate test of his hypothesis.
The grafts were small — one inch by one inch, sewn onto the side of the animal’s chest, protected by an elastic bandage wrapped around the cat’s body. First, the team gave some of the cheetahs a skin graft from a domestic cat, just to make sure the animals had an immune system. Sure enough, the cheetahs rejected the cat graft: It got inflamed, then necrotic. Their bodies knew what different was — and a domestic cat was different. Then the team grafted skin from other cheetahs. What happened? Nothing! They were accepted, O’Brien said, “as if they were identical twins. The only place you see that is in inbred mice that have been brother-sister mated for twenty generations. And that convinced me.”
O’Brien realized that the world’s cheetah population must have at some point been devastated. His best guess was that it happened during the great mammal die-off 12,000 years ago — when saber-toothed cats, mastodons, mammoths, giant ground sloths, and over thirty other species were wiped out by an ice age. Somehow the cheetah survived. But just barely.
“The numbers that fit all the data are less than one hundred, maybe less than fifty,” O’Brien said. It’s possible, in fact, that the cheetah population was reduced to a single pregnant female. And the only way for those lonely few cheetahs to survive was to overcome the inhibition that most mammals have against incest: Sisters had to mate with brothers, first cousins with first cousins. The species eventually rebounded, but only through the endless replication of the same narrow set of genes. The cheetah was still magnificent. But now every cheetah represented the exact same kind of magnificence.
From “Revenge of the Tipping Point: Overstories, Superspreaders, and the Rise of Social Engineering” by Malcolm Gladwell. Copyright © 2024 by Malcolm Gladwell. Reprinted by permission of Little, Brown and Company, a division of Hachette Book Group. All rights reserved.
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