At an event on April 4, Federal Reserve Chair Jerome Powell indicated that, despite heightened concerns about a recession, the FOMC is in no rush to take action on interest rates. At the FOMC’s December meeting, a survey of FOMC members known as the “dot plot,” showed that a majority of members project another 50 bps cut to 3.9% in total, by the end of 2025. The members’ median projection at the FOMC’s March meeting showed the same rate decrease by year’s end.

Between March 2022 and July 2023, the Fed raised rates by more than five percentage points. In keeping with its mandate, the Fed prefers inflation to rise by 2% and for the labor market to be as fully employed as possible without causing inflation to go beyond that target rate. Our Platform offers the most reliable macroeconomic data and advanced analytical tools. This change is the first to have taken place since on November8th 2024, when the Central Bank lowered interest rates by 0.25 percentage points to 4.5%.

For instance, a half a percentage point change in an interest rate would equals 50 basis points. The Fed, though, doesn’t just rely on inflation and employment metrics to devise its monetary policy. It considers all sorts top 10 books on forex trading psychology of indicators, from housing starts to consumer spending, to gauge just how well the economy is performing.

Inflation remained pretty subdued, however, with core PCE inflation topping out at 2.67% in August 2006, despite the Fed’s hawkish turn. By the end of this cycle of rate increases, the unemployment rate sat at 4.6% and PCE inflation started to decline toward the Fed’s 2% target. In late 2008, the Fed slashed rates to zero in an unprecedented attempt to help the U.S. economy cope with the fallout from the 2008 global financial crisis. Seven years later, the central bank began gingerly raising rates as the economy recovered gradually. But when the Fed realized that inflation was going to be much less transitory than it imagined, it shifted gears forcefully.

Upgrade High-Yield Savings Account

With recent retail sales coming in lower than expected, the Fed felt more stimulus was needed. In March 1997, inflation stood at 1.94% and was inching up ever so slightly. The glorious 1990s economy was roughly six years into its 10-year-long expansion, and the Fed wanted to ensure that prices stayed moored to its 2% target.

Compare the Best High-Yield Savings Accounts

We like this account for its easy opening process and cool savings features. Requiring the least amount of information, this account was one of the most streamlined to open. Also, you can create your savings goals right on your home screen and participate in automatic rounding from your checking account to deposit your spare change into savings. lmfx review Despite the Federal Reserve’s interest rate cuts last year, mortgage rates have remained near their 25-year peak because they tend to track the 10-year Treasury bond, which is sensitive to economic conditions. With Moody’s downgrade on Friday, the markets slipped in early trading and the yield on the 10-year Treasury jumped above 5%, the highest since late 2023.

• This week’s top-notch yield is offered by Openbank, the digital arm of Santander Bank.
• But beyond the interest rate, you’ll also want to make sure the account either doesn’t have a minimum balance requirement, or has one that you feel confident you can regularly maintain.
• Searching for a top annual percentage yield (APY) is a good starting point when choosing a high-yield savings account, as you’ll want to earn a competitive rate.
• Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products.
• The Federal Open Market Committee (FOMC) sets a target range for the federal funds rate.

What Moody’s downgrade of U.S. credit rating means for your money

Every business day, we publish a ranking based on the highest savings account APYs available that day from nationally available institutions. All savings accounts and rates in our rankings were collected, verified, and available to open as of May 27, 2025. When the Federal reserve lowers the federal funds rate, banks pay less to borrow money from one another.

In fact, for most of the 1980s, the Fed didn’t even use the federal funds rate to set interest rate policy. The 1990s are remembered as a time of rampant wealth creation and productivity growth, so it’s somewhat surprising to see three rate cuts over a six-month period smack dab in the middle of the decade. The Fed lowered interest rates by a total of 5.25 percentage points with a steady drumbeat of rate cuts throughout 2001. Conversely, when prices rise too quickly (like in the aftermath of the pandemic), the Fed will raise rates in order to stymie economic activity. The unemployment rate will tend to rise (as has happened over the past year or so), as businesses find it harder to invest. Use our savings account calculator to see exactly how Forex Trading for beginners much you can earn with a high-yield savings account.

• For more information on any of the accounts below, scroll past the table for detailed account profiles.
• The listings that appear are from companies from which this website may receive compensation, which may impact how, where and in what order products appear.
• Between March 2022 and July 2023, the Fed raised rates by more than five percentage points.
• None of the accounts listed here offer check-writing privileges, even if the name might suggest otherwise.
• Still, if you’re a heavy debit card user, one of the best rewards checking accounts may be a good option for you.

As the Fed has raised the federal funds rate in an attempt to reduce inflation, APYs on high-yield savings accounts have generally gone up. This delay of banks following rate cuts could allow savers to continue earning competitive rates for high-yield savings accounts a bit longer. As the name implies, high-yield savings accounts pay much higher interest rates than traditional ones. The best high-yield savings account rate is 5.00% APY, available from Varo Bank and Fitness Bank. That’s more than 12 times the FDIC’s national average for savings accounts of 0.42% APY. A high-yield savings account is great because it pays more interest, while still giving you the flexibility to withdraw your money when needed.

What happens when the Fed lowers interest rates?

For more about how we choose the best high-yield savings accounts, read our full methodology. Transfers between different institutions will take one to three days to complete, so be sure to keep enough of a cash cushion either in your checking account or in a linked savings account at that same institution. That way you won’t run into trouble if you can’t get funds from your high-yield account for a couple of days. Of course, you can boost your balance even more by regularly adding deposits to your savings account. One smart way to do this is to set up an automated transfer from your checking account once a month. That’s according to the Federal Open Market Committee (FOMC), the monetary policymaking part of the Federal Reserve that holds eight scheduled meetings a year to set the federal funds rate.

It wasn’t that long ago that the Fed was keeping the federal funds rate as low as possible as recently as the first few months of 2022, as well as buying billions of bonds each month to prop up the economy. Please note that before 1990, the Fed didn’t explicitly target a set federal funds rate. If you’re interested in earlier rate policy, look through this Federal Reserve document produced through a Freedom of Information Act request. Yes, interest earned from a high-yield savings account is typically considered taxable income and must be reported when you file your taxes. If you earn at least $10 in interest in a calendar year, your bank will likely issue you Form 1099-INT, which details the amount of interest you received.

Reasons to Open a High-Yield Savings Account

The FOMC has eight regularly scheduled meetings each year and announces its policy decisions at 2 p.m. The FOMC is made up of members of the Board of Governors, who are based in Washington, D.C., and Federal Reserve Bank presidents from around the country. The amount and frequency of change varies depending on the bank’s policies, competition and external economic factors such as the Fed’s changes to its benchmark rates. If some of your savings can be socked away and not touched for a period of time, you may be able to earn a higher rate with a certificate of deposit. CDs require you to commit your funds to remain on deposit for a number of months or years, imposing a penalty if you request to withdraw the funds before the CD’s maturity date.

We evaluated various factors, including rates, requirements and user experience to help you decide where to put your money. We like Upgrade for its quick application process – just five minutes and only seven steps. They also offer several other products, including personal loans, that not all online banks have. Like 65% of the savings accounts we reviewed, there are no fees on the account. Upgrade ranked among our top picks for its competitive APY, which you’ll earn if you maintain a balance of at least $1,000.