By Brian O’Connell
The Federal Reserve’s decision to leave the Federal Funds rate at 0.25% last week wasn’t a surprise to bond traders, but it’s certainly going to contribute to the downward spiral we’re seeing in CD rates.

That, too, was expected, as the Fed continues to pour money into the battered U.S. economy and uses its financial clout to drive bank interest rates lower.

That’s been the recipe for the first four months of 2009 and it’s not changing now, or if anytime soon.

CD rates fell slightly for the week, with five-year CD rates falling from 2.29% to 2.27%, while similar news played out down the CD ladder. Four-year CDs fell from 2.14% to 2.11%; two-year CDs were off from 1.64% last week to 1.62% this week; and one-year and six month CDs slid down to 1.39% and 1.06% this week, respectively.

Also contributing to sliding CD rates is the appearance of a healthier stock market, as exemplified by the Standard & Poors 500 Index in April, which was up a relatively vibrant 9.57% for the month and 6.48% over the past three months. That’s driving a lot of that safe haven money out of fixed income instruments and back into the equities market, as investors try and catch some momentum in stocks, after a few months hiatus.

Other factors are veering down on CD rates, as well. Potential anxiety over the U.S. corporate earnings season never really materialized. As firms did better than Wall Street expected, fears over the economy were reduced, but not to the point for the Federal Reserve and the U.S. Treasury to continue its strategy of flooding the economy with cheap money.

But if that fear subsides, as talk of “green shoots” crops up in national media circles, then policy makers may well decide that the only thing we have to fear is fear itself; throttling back on cheap money would bring CD yields back up again.

But that isn’t happening this week, and probably not even this month. That said, the idea that the economy is beginning to improve is solidifying, and it’s only a matter of time, however slow the pace, before talk of the recession and depression is replaced with talk of inflation and growth.

In the meantime, CD rates should continue to remain sluggish as April showers are not likely to bring May flowers.

Check out BankingMyWay.com to find the best CD rates in your area.

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