The Consumer Financial Protection Bureau (CFPB) is a regulatory agency of the United States government that is responsible for consumer protection in the financial sector. The CFPB was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 in response to the 2008 financial crisis, which highlighted the need for stronger consumer financial protections. The CFPB's mission is to make markets for consumer financial products and services work for Americans, whether they are applying for a mortgage, choosing among credit cards, or opening a savings account or a CD. The agency enforces federal consumer financial laws and regulations, educates consumers about financial products and services, and monitors the financial marketplace for abusive and fraudulent practices.
In a country where so many consumers from all walks of life are vulnerable to financial predators, the CFPB serves an important role in protecting consumers from abusive and predatory practices in the financial industry. Its actions have helped to level the playing field for ordinary Americans who might otherwise be at a disadvantage in dealing with financial institutions.
Nevertheless, some Republicans have expressed opposition to the CFPB and have advocated for changes to its structure or even its elimination. They believe that it has too much power and is unaccountable to Congress or other elected officials. They also argue that the CFPB's broad mandate and enforcement authority can stifle innovation and limit access to credit.
Republicans' efforts to derail the CFPB have focused on legal challenges. They argued in 2020 that the CFPB, which is headed by a single director who can only be removed for cause, lacks sufficient oversight and transparency, and the Supreme Court ruled that the bureau’s director could not be insulated from executive oversight. More recently, in October of 2022, a panel of three Trump-appointed judges from the Fifth Circuit Court of Appeals ruled that the CFPB’s funding mechanism violates the Appropriations clause in the Constitution. The Supreme Court has agreed to take the case, and John Roberts is clearly sympathetic to the Republicans’ position here.
It certainly seems that the CFPB’s days as an organization with any sort of power are numbered.
The Federal Reserve has raised the Fed Funds target rate by 25 basis points to a target of 4.50% to 4.75%. Like the Fed’s six moves in 2022, today’s Fed move was very well telegraphed by Chairman Jay Powell. However, unlike each of the Fed’s five previously moves that were either 50 or 75 basis points, today’s move represents a raise in he target rate o only 25 basis points.
The Fed also states that it continues to see the need for “ongoing increases” in the Fed Funds rate, indicating that it may still not be near the end of its hiking cycle.
The prospect of slower moves had lead market participants to believe that the Fed’s hawkish tone is ending, with perhaps one further 25 basis point increase after this February 2023 move, and that the Fed would be already acting to lower rates by this time in 2024. That looks less likely now that the Fed is projecting ongoing increases.
The challenge here is quite evident. While some observers can manipulate inflation measurements to show that it has brought inflation under control, you would need to be living in a shell not to realize that sellers of most goods or services with pricing power can continue to gouge their customers.
Hence, the logic applied by many economists is that by its very nature, heightened inflation caused by long periods of tremendous liquidity can only be brought under control only by raising rates to the point where they reigning in the economy and perhaps even cause a recession.
If this logic holds true, several more Fed increases will be coming still. And, it is possible that the fact that the markets have yet to respond adversely to the Fed’s hawkishness will give the Fed further leeway to move further and longer than market participants are projecting.
While the rate environment is dramatically different now, the most important piece of advice that I can give as we enter 2023 is the same as that which I would have given in 2022, 2021, or 2020. Get your cash out of non-competitive account. Whereas in past years, that advice meant encouraging people to move their money from accounts paying 0.01% to those paying 0.60%, top rates are now 6 or 7 times higher, making it even more important to act now. The old excuses – “we aren’t talking about a lot of money”, “I am making so much on the market, in bitcoin, etc.”, “it just isn’t worth my time”, “my tax bracket is so high that all the extra earnings will be taxed away anyway” – don’t work anymore. And, with inflation real and present, earning more on your cash gives you a fighting chance on maintaining purchasing power parity.
Even though the Fed is not finished raising rates, many are eager to lock down the certainty in earnings that a one-year, 18-month or two-year certificates of deposit now offer. While short-term US Treasuries have been compelling over the last several months, short-term CDs may become dramatically more compelling as banks and credit unions are forced to seek capital to maintain FDIC and NCUA deposit requirements in early 2023. Do not take it for granted that short term US Treasury will remain above similar duration bank CD rates.
If you are willing to sacrifice liquidity in order to secure an attractive, fixed interest rate for a longer period (3 years, 4 years or 5 years), online bank or credit union CDs are now your best bet. US Treasury bonds are currently offering much lower yields for these durations, even after accounting for their state and local tax benefits. Agency bonds – particularly those offered by Federal Home Loan Bank, Federal Farm Credit Bank and TVA which are state and local tax free - may offer higher rates than CDs, but are always callable after one year or less. Also, they are considered by many to be less secure than CDs (as long as you stay within FDIC and NCUA limits) as there is a moral obligation on the part of the federal government, but not the explicit guarantee that the FDIC and NCUA provide.
There are a lot of ways to earn more in 2023 and we hope you’ll continue to make BestCashCow part of your strategy.
