Flickers of Hope Emerge for Deposit Rates

By Richard BarringtonMoneyRates.com

Earlier this month employment growth for December was announced at 155,000 new jobs. This was a good but not great showing for the job market, which largely sums up the economy for 2012. The question is, what kind of year does that set up for 2013?

Continue Reading Below

The U.S. economy continued to grow throughout last year, but not strongly enough to give any lift to CD, savings and money market rates. December's job growth was a good example. The Bureau of Labor Statistics announced that 155,000 new jobs were created in December. This was about in line with November's job growth of 161,000, a number that benefited from an upward revision of 15,000 in the latest report.

This level of job growth indicates that the economy is not slipping into a recession, but has not yet generated enough momentum to make a serious dent in unemployment and drive interest rates upward. What's left now is to look ahead rather than backward.

Growth and the fiscal cliff

Perhaps the most encouraging thing about December's employment growth is that it took place in the shadow of the fiscal cliff. Uncertainty is bad for business conditions, and it would have been natural for employers to put off hiring plans until the fiscal crisis was resolved.

More On This...

If the economy managed 155,000 new jobs despite that huge uncertainty, it creates hope for what kind of job growth will come in January, after at least one major aspect of the fiscal cliff -- the tax question -- had been resolved. The stock market certainly reacted favorably in the immediate aftermath of the tax deal. The question now is whether employers will show similar optimism in their hiring plans.

Impact on the Fed

Besides the general state of the economy, another important influence on interest rates is the Federal Reserve. The Fed has made it clear that it will do everything it can to keep interest rates low as long as the economy is weak, and the key aspect of the economy the Fed is focused on is employment.

December's employment growth was not enough to budge the unemployment rate from 7.8%. It will take stronger growth to lower that number, and a sustained period of such growth to get unemployment down to the 6.5% target the Fed has set for the threshold at which it would start to back off from its low interest rate stance.

Outlook for savings accounts

Because of the Fed's policy, and because growth generally gives banks more incentive to offer higher interest on deposits, a stronger economy is the key to whether rates on savings accounts rise in 2013. Between a decent employment number for December and a stimulus-friendly tax deal, recent weeks have brought some optimistic signs for savings accounts.

The key to 2013 will be whether growth can start to gain momentum. The first real sign of that will come with the January employment report, which will be released in early February.

The original article can be found at Money-Rates.com:Flickers of hope emerge for deposit rates