There are two reasons why Professor Sargent may have answered “no” to the question. Professor Sargent is well known for his work on ‘“rational expectations” and monetary policy. The theory says that monetary policy has no impact on economic growth) As the FED’s primary instrument for shaping monetary policy is short-term interest rates, the logical continuation of this thought is that short-term interest rates have no impact on economic growth. Why should Sargent care (or research) what CD rates will be in two years if he doesn’t believe they will impact the economy!
I actually think that Professor Sargent does know what CD rates are going to be in two years. I don’t think he knows the exact number. However, I think he knows within a quarter percent the range which they will be. In other words, he’s giving a technical answer the question rather than a real one.
Why is easy to predict short-term CD rates:
National Short Term CD Rates (6 month, 1 year, 2 year, 30 months) Closely Follow FED Funds Rate Which Is Controlled By The Fed – Click Here For The Proof
The Federal Reserve has recently started to announce their policy expectations for interest rates. They are currently predicting that they will not be rising short-term rates until the middle of 2015
The national average for 30 Month (2.5 years) CD rates will continue at current levels of around 0.21 – 0.31% yield for next two years.
Why national CD rates differ so sharply differ from Learn Bond’s Best CD Rates?
Top Two Year CDs are yielding 1.25% or almost a full percent over the national average. Find Best CD Rates.
Some banks use their CD rates as a way to draw in customers. A few hundred dollars of extra interest to them is viewed as a marketing expense. There is a problem for the customer approach. To keep getting a high rate, the customer must be willing to move their money from one bank to another. The banks are counting on the fact that many customers will not want to go through the hassle when it comes time to renew their CDs.