The Federal Reserve voted unanimously today to move the Federal Funds rate up by 25 basis points to 2 to 2.25%.

BestCashCow had predicted this move for some time. By late last week, economists polled by various polling services had all moved to a position of over to 90% likelihood of this move. It was very well telegraphed by Federal Reserve Chairman Jerome Powell.

As a result of this move, we will see higher online savings rates. You will also likely see more competitive local savings rates from banks and credit unions in your area.

We may also see a rise in CD rates, including online one-year CD rates and local one-year CD rates.

The Fed continues to be very hawkish. We predict another rate move in December and several next year with 12 of 16 Fed members now forecasting this 4th hike for 2018.

The Fed Funds’ long term target remains at 3.375% for 2020 and 2021. Today, it raised its long-term "neutral" target to for years beyond 2021 to 3% from 2.90%. Hence, we would continue to be very cautious about long-term CDs.

The Fed may need to move faster and harder than its now hawkish predictions. Inflation is going to come as a result of Trump’s trade battles and China tariffs. It isn’t just a premonition. In fact, I saw a hawk today during my morning bike ride in Central Park. In 20 years of riding my bike there, this was the first time seeing one on my morning ride. It must mean something. (He or she is shown on the picture).

I cannot turn on CNBC or Bloomberg without hearing some money management type explain that there is no risk of a stock market crash because it is not wildly overbought like it was in 1929, 1987, 2000 or 2008. It seems that everyone is drinking this Kool-aid at the moment.

While it tastes good, it isn’t exactly right.

The stock market is trading at a 2018 PE multiple of 18x and a 2019 multiple of 17x.

I would submit that a 17x future multiple for an economy that has the appearance of 3% growth is very expensive. (I say appearance because I believe that tax relief generated most of this growth and that it will be rolled back in 2019, even if the Republicans maintain control of both houses of Congress).

The stock market is, in fact, buttressed by some stocks that are incredibly inexpensive on a PE basis. Even some leading technology stocks appear very inexpensive (Apple and Intel, in particular). But, some stocks are terribly out of whack with any sort of reasonable valuation metrics.

The PE multiple doesn’t need to be 20 or 25 or 30 for the market to be irrationally expensive. There is no magic number.

And, market crashes or corrections are caused by a quick change in sentiment when the market is dramatically overbought. In my view, some things that could cause a change in sentiment are: a President who is mentally incapacitated, a trade war with China / inflation, a change in control of the House of Representatives, or an environmental catastrophe.

Massively overbought or just irrationally expensive, there is trouble on the horizon.

This is a good time to increase your exposure to cash. See the best rates here.

As we move into the fall with all sorts of political turbulence with potential economic ramifications, the Federal Reserve remains poised to raise the Fed funds rate by 50 basis points to 2.25% to 2.50% before December.

As we pointed out in our August update and in other recent articles, the Federal Reserves’ dovish position has now led to the spread between 1-year CD rates and online savings rates which has widened out to 60 basis points -- the widest it has been in over a decade.

The Federal Reserve’s disposition and the likelihood of as many as four additional raises in 2019 cause us to recommend against longer-term CD rates now, especially 5 year CDs.

If you feed obliged to reach for higher yields, we recommend the following 3 products:

1. Synchrony Bank – 13-Month CD at 2.65% (requires a balance over $2,000)

Synchrony’s 13-Month CD pays more than any online 12-month CD, and we think it makes sense to lock in for an extra month for the additional yield. (Editor's Note: As of September 13, 2018, it is possible to find online one-year CDs that yield more than the 13-month Synchrony product. In many areas of the country, you can also find local 1-year CDs that match or exceed this rate at local banks or credit unions).

2. Marcus – 12-Month CD at 2.55%

Marcus’s one-year CD rate was recently raised. We think that the current offering provides enough of an improvement over current savings rates to adequately compensate those investors willing to lock up money that they are certain they won’t need for a year. See all 1 year CD products here.

Editor’s Note: Marcus is an advertiser on BestCashCow. Please read our Advertiser Disclosure here.

3. Ally Bank 11-Month No Penalty CD – 2.00% (requires a balance over $25,000)

For those depositors with over $25,000 to invest, Ally often offers a slight yield improvement over their savings rates.

Since this product can be terminated easily online with no penalty, it is basically a savings or money market account a wearing different skin.

By and large however we are more inclined to stick with savings and money market accounts in a rising interest rate environment. Within that category, we’d prefer to stick with offerings by banks that have made a commitment to this space. Two that we like are:

1. Radius Bank Online Savings – 1.96% (requires a balance over $25,000)

While it is a relatively new entrant to the online savings arena, Radius has a neat cutting edge user interface and solid reviews. Since they just raised their rates at the end of August for depositors over $25,000, we suspect that they will continue to be competitive in this space and for this market.

Editor’s Note: Radius Bank is an advertiser on BestCashCow. Please read our Advertiser Disclosure here.

2. Marcus – 1.85% Online Savings rate

Marcus has outstanding customer reviews and, with its lightening fast ACH transfers, it is a good place to stash cash that you might need to access quickly. More importantly, Marcus has proved in 2018 to be just a little bit faster to raise rates than the other most recognized online banks (Amex, Barclays and Ally). Since Marcus is owned by Goldman Sachs, we feel that depositors, especially those inclined to occasionally deposit over FDIC limits, should sleep well at night.

Editor’s Note: Marcus is an advertiser of BestCashCow. Please read our Advertiser Disclosure here.

Before opening an online savings or money market account, BestCashCow always urges depositors you to check local bank rates and local credit union rates.