Good news in the stock market may be setting the table for higher certificate of deposit rates, but right now, at least, the bun is still in the oven, as the old saying goes.

That’s the takeaway from this week’s CD rate on BankingmyWay.com.

While we did see some upward momentum on two-year CDs (from 1.56% to 1.58%, week-to-week), and some stability on longer term bank savings vehicles (the four-year CD held steady at 2.21% this week), yields on shorter maturity vehicles gave some ground again.

Six- and twelve-month CDs fell from 0.87% and 1.19%, to 0.84% and 1.17%, respectively from last week. Three-month CDs were stable at 0.56% - just like last week.

Ironically, the relatively tepid performance of bank CDs last week went untethered to the 7% gains in the Stand & Poor’s 500 (up 597 points) last week. True, it’s only a short-term window, and flights to quality from the fixed income market to the stock market can take the wind out of bank CD performance. But on the other side of the coin, any sign of economic recovery usually signals a longer-term rise in CD rates.

For that to happen, we’ll need to see more good economic news, akin to the strong new housing starts number and encouraging quarterly profits picture from major U.S. companies. Even then, we’ll need to see several more sessions on Wall Street like the one last week, where the S&P 500 posted its best five-day period since March 13.

That will happen, sooner or later, and when it does the Federal Reserve will no doubt step in and raise interest rates, thus forcing banks to pony up more cash to borrow money. That’s the type of environment where CD rates thrive – and it’s the opposite of the environment we’re treading lightly in right now.

Interest rates, thanks to the Fed’s desire to keep credit cheap, are down to almost zero percent, so banks can borrow plentifully and cheaply. That leaves almost no incentive for banks to take the lid off on CD rates.

The Fed has come out publicly and said the recession should end by the end of 2009, with positive GDP growth estimated for 2010 (albeit meek-and-weak growth, but growth nonetheless). But American households and businesses might be starting to look at government pronouncements that the economy is on the end with a grain of salt. Peter can only cry ‘wolf” so many times before he begins to lose credibility.

So it goes for the U.S. government and the Federal Reserve. For example, on Monday, the Obama administration opted to hide the U.S. budget numbers until after the August Congressional recess. This from the Associated Press on Monday, July 20:

“The administration’s annual midsummer budget update is sure to show higher deficits and unemployment and slower growth than projected in President Barack Obama’s budget in February and update in May, and that could complicate his efforts to get his signature health care and global-warming proposals through Congress.”

“The release of the update — usually scheduled for mid-July — has been put off until the middle of next month, giving rise to speculation the White House is delaying the bad news at least until Congress leaves town on its August 7 summer recess.”

That could spread even more anxiety throughout the U.S. economy and financial markets. Let’s face it: people want transparency from their government, especially at a time of precarious financial health. Keeping individuals and businesses walled off from the ever-expanding U.S. budget picture is not conducive to economic growth, and thus not conducive to higher bank savings rates.

And that’s continuing to weigh heavily on bank CD investors, who endure one week while not knowing for sure what the next one will bring.

That’s not exactly a recipe for healthy CD performance.

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