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Almost exactly a year ago, September 2024, the Fed lowered the Fed Funds rate by 50 bp after holding steady in the preceding months, kicking off the start of the falling rate cycle. This year, after similarly holding rates steady in the preceding months as worries of inflation persisted, the Fed again chose September as the first month of the year to lower rates, this time by 25 bp. What is different this time around, however, is that fewer banks have shown a willingness to follow the Fed’s lead in the weeks immediately following.
The disconnect is reflected most notably in the highest CD rates offered by banks, which remain generally the products earning the highest rates available to consumers. After last year’s cut, just over half of banks (51%) followed the Fed in lowering rates, with fully 18% of them anticipating the Fed decision by lowering top CD rates even before the Fed move (see chart, left side).
This September, banks have shown less willingness to lead the Fed or even move at all. Only 41% followed the Fed last month in lowering top CD rates, and only 9% lowered top CD rates beforehand, half as many as last year (see chart, right side). This reticence reflects a new dynamic: Amid fiercer competition for deposits, banks are placing more importance on having a competitive flagship CD rate as an important tool in managing deposit retention, especially in a market where rates continue to be on the move.
CD Rate Cuts on Highest-Rate Term | August – October
Source(s): Curinos Retail Advisory analysis based on data from Curinos Standard Rate Data. | Note(s): FIs are categorized by the period in which they first cut their rates | * FIs are determined to be cutting ahead of the Fed if they lowered rates at any point in the 4 weeks leading up to the September Fed Funds cut | ** Represents cuts made in the 4 weeks following the Fed cut. More than 1,000 FI’s included.
