The Fed kept the range for its target overnight rate stable at 2.25% to 2.5% during the first half of the year before cutting it to 2% to 2.25% at the conclusion of its most recent policy meeting on July 31. Further cuts are widely expected, including at the next policy meeting in September.
In the aggregate, deposit rates are moving down, “but there are pockets of upward pressure,” said Andrew Frisbie, an executive vice president at the advisory firm Novantas. “There’s a lot of money on the commercial side that might be sitting at very low rates because it was only partially negotiated, and at some point” the client “might ask for more.”
In recent periods, bank funding costs have also been pushed higher by a shift toward relatively high-cost certificates of deposit. Though time deposits represented just 16% of industrywide total deposits at the end of the second quarter, they accounted for 58% of growth in deposits since the end of 2017.