The Federal Reserve's upcoming rate decision has put markets on edge, as major averages showed a decline shortly after 1 p.m. ET today. The Dow Jones Industrial Average dropped by approximately 72 points, marking a 0.2% decrease, amid anticipation of the Fed's announcement at 2 p.m. ET. Traders are overwhelmingly predicting that the central bank will maintain interest rates within the current target range of 4.25% to 4.5%, following three consecutive rate cuts to conclude 2024.
The Fed's decision is pivotal for investors, particularly those focused on fixed income and cash, as it influences earnings from these investments. The rate on the 2-year Treasury saw a slight increase to 4.21%, while the 10-year Treasury note yield remained relatively unchanged at around 4.55%. Despite these stable rates, some high-yield certificates of deposit, savings accounts, and money market funds offer yields above 4%, starkly contrasting with the industry average savings account yield of just 0.41% APY.
"From an investment perspective, make sure your cash allocation aligns with your investment goals, time horizon and risk tolerance, rebalancing as needed," – Brandon King, head of personal investor cash at Vanguard.
As the Fed's policy announcement looms, all eyes are on Fed Chair Jerome Powell, whose remarks at 2:30 p.m. could provide critical insights into the central bank's future policy direction. Investors are seeking clarity on whether Powell will respond to President Donald Trump's recent demand for immediate rate cuts. Last week, President Trump publicly stated his intention to push for lower rates, adding another layer of complexity to the economic backdrop.
"The industry average savings account is offering just 0.41% APY," – Brandon King, head of personal investor cash at Vanguard.