By Anita Hamilton
Sweet interest rates averaging above 4% on high-yield savings accounts over the past year are poised to drop when Federal Reserve Chair Jerome Powell makes good on his promise to lower interest rates for the first time since the pandemic started in 2020. "The highest yields will trickle down," says Bankrate Senior Economic Analyst Mark Hamrick.
While some banks will start lowering interest rates even before the Fed announces its decision on Sept. 18, others will be "in a wait and see mode," says Nathan Stovall, director of financial institutions research at S&P Global Intelligence. That's because they need to weigh the risk of losing consumer deposits against the higher margins that could come from lowering savings rates.
Past rate cuts give a rough idea of what to expect. When the Fed lowered rates three-quarters of a percent between July and October of 2019, for example, rates on high-yield savings accounts only fell about a quarter of a percent on average during the same period, according to data from the website DepositAccounts.com.
Last year's bank failures have increased pressure on banks to keep more cash on hand. That means they may be less willing to risk losing deposits.
One thing to watch: any Fed signals about further rate cuts. If Powell indicates there will be more before year's end, banks may feel emboldened to lower savings rates now.
Write to Anita Hamilton at anita.hamilton@barrons.com
Last Week
Markets
Oil prices fell over the Labor Day holiday, nearing lows for the year. China considers lowering interest rates on $5.3 trillion in mortgages. Stocks fell as manufacturing data came in soft, and Nvidia, Intel, then Broadcom fed the slide. August jobs came in at a cool 142,000. It was an ugly start to September. On the week, the Dow industrials fell 2.9%; the S&P 500, 4.3%; and the Nasdaq Composite -- off -- 5.8%.
Companies
Bloomberg reported that Nvidia was being investigated for antitrust violations. Elon Musk's Starlink agreed to block X in Brazil after a regulator threatened sanctions. Hong Kong's Cathay Pacific Airways ordered an inspection of all its Airbus 350 planes after an engine fire on one. Volkswagen told workers it may close some German factories for the first time, as competition sharpens.
Deals
Verizon Communications agreed to buy Frontier Communications for $20 billion, including debt... Seven & I Holdings rejected Alimentation Couche-Tard's $39 billion bid, saying it "grossly undervalues the business."...Intel is working on a plan to split up the company...President Joe Biden looks to be preparing an order to block Nippon Steel's $15 billion acquisition of U.S. Steel...Bain offered $4.1 billion for Japan's Fuji Soft, topping an already agreed-upon deal with KKR...Blackstone agreed to buy Australian data-center operator AirTrunk for $16.1 billion...The Nordstrom family wants to take its namesake retail chain private for $3.8 billion, partnering with Mexico's El Puerto de Liverpool.
Next Week
Monday 9/9
Two megacap software companies release earnings this week. Oracle announces quarterly results after the closing bell on Monday and Adobe does the same on Thursday.
Wednesday 9/11
The Bureau of Labor Statistics releases the consumer price index for August. Consensus estimate is for the CPI to increase 2.6% year over year, three-tenths of a percentage point less than in July. The core CPI, which strips out volatile food and energy prices, is expected to rise 3.2%, matching the July figure. The annual changes in the CPI and core CPI are at their lowest levels since spring of 2021. The CPI release is the last major piece of economic data before the Federal Open Market Committee meeting on Sept. 17-18, and may determine whether the FOMC cuts the federal-funds rate by a quarter or a half percentage point at that meeting.
Thursday 9/12
The European Central Bank announces its monetary-policy decision. The ECB is widely expected to cut its key short-term interest rate by a quarter of a percentage point to 3.5%. The ECB started its rate-cutting cycle in June, well before the FOMC, as euro-zone gross-domestic-product growth has been anemic.
The Numbers
497 K
The number of 401(k)s at Fidelity worth more than a million dollars, a record, up 31% from last year.
100 M
Estimate of Chinese steel exports this year in tons, the highest since 2016 and third highest in history.
86
Score on China's consumer confidence in July, nearing November 2022's record low of 85.5.
84%
Estimate of 2023's gender gap in pay, up from 80% in 2003, mostly due to falling male inflation-adjusted pay.
Write to Robert Teitelman at bob.teitelman@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
September 06, 2024 20:00 ET (00:00 GMT)
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