LAKE BLUFF, Ill.— Even after the Federal Reserve held rates steady again this month, the message from the market is increasingly clear: financial institutions should prepare for a “higher for longer” deposit environment in 2026—and possibly even the risk of a rate hike before year-end—as sticky inflation, rising oil prices and geopolitical turmoil keep pressure on funding costs and intensify competition for consumer deposits.
That means credit unions and banks may need to stay aggressive and nimble on deposit pricing if they want to protect and grow core funding, according to Moebs $ervices, which said institutions should actively reprice savings, money market and interest checking accounts to remain competitive, closely track Treasury yields—especially at the 6-, 12- and 24-month points—and lean on strong CD offerings, particularly 12-month terms, to retain balances while avoiding overextending risk on longer maturities.
J.V. Proesel
“Since the Fed’s decision to leave rates unchanged this month, the rate market has been anything but calm,” noted J.V. Proesel, president of Moebs $ervices. “The Fed left the target rate steady for the second time this year at 3.50% to 3.75%, placing the effective federal funds rate (EFFR) at 3.64%. While no one anticipated the Fed to adjust rates this month, geopolitical tensions, persistent inflation concerns, skyrocketing oil prices, and a stagnant jobs market is driving volatility in Treasuries yields.”
Proesel pointed out there has been much debate lately on Wall Street about how traders can navigate the “Trump Market,” which swings rapidly based on the latest whiplash headlines dealing with war developments from Iran and the economic ramifications.
Yield Curve Impact
“The Fed cut rates three times at 25 basis points each in 2025 for a total of 75 bps,” noted Proesel. “The impact on the yield curve is clear (see image below), with a noticeable reduction in short-term rates less than two years and more subtle increase in long-term rates greater than five years. The yield curve has flattened since a year ago; especially short-term rates anchored by the two-year Treasury Note. It’s currently the classic hockey stick yield curve.”
However, the more significant development is the rise in yields across the curve in just the last 30 days,” Proesel said.
“Traders are pricing rates higher for longer, and fewer rate cuts this year than anticipated just a few weeks ago,” he explained.
Economic Outlook
“The economic outlook isn’t all roses and rainbows,” continued Proesel. “Inflation can be described as persistent at best. While core CPI was up 2.4% annually in February; the PPI (Producer Price Index) is running at 3.4% on a year-to-year basis for same period. This is the highest PPI rate in 12 months, and an indication price pressure is building. There is no sign this trend is transitory.”
The PPI is a leading indicator for inflation, and the February data doesn’t price in the latest events in the Middle East, including oil prices and increasing energy costs. Oil Prices are rising and despite Washington’s attempt to quell concerns, oil prices may continue to rise impacting overall inflation, Proesel said.
“The concern is markets have yet to fully price the long-term impact of high oil prices,” warned Proesel.
The labor market is weak with Powell even recently acknowledging “adjusting for potential overcounting in recent data, effectively there’s zero net job creation in the private sector,” Proesel pointed out.
“This is a big statement from the chair of the Federal Reserve,” Proesel said.
What About Deposit Rates?
Moebs $ervices latest research (depicted in the table below) compares the average National Deposit Rates to average Treasury Yields for the first three weeks of March 2026.
“This table is a stake in the ground to benchmark the fluctuating rate market that will play out this year,” Proesel said.
Moebs $ervices is urging depositories to proceed cautiously, but price purposefully with deposit rates:
- Cost of funds will remain stubbornly high through 2026, and consumer deposit dollars are very competitive. Active rate management is critical
- Core deposits are the most efficient compared to alternative funding sources. Price savings, interest checking, and MMDA greater than market competition
- The 12-month CD and T-Bill spread is key. The 12-month term dominates the deposit rate market and is usually the smallest spread differential due to high competition
- Protect deposits with aggressive rates priced to Treasuries yields for 6-,12- and 24-month terms
- There is more pricing flexibility for longer terms > 2 years; but be careful not to overextend risk exposure
- Actively monitor Treasury yields. Price deposit services at least monthly, review biweekly
The Big Picture
“Despite the Fed not changing rates in 2026, the shape of the yield curve has evolved dramatically. The market is pricing higher rates for longer with elevated rates at the front end of the yield curve driving deposit prices. This is inflation risk pricing,” Proesel said.
Moebs $ervices said it anticipates stubborn cost of funds being offset by rising loan rates, but is cautious of weakening loan demand and volume due to the softening labor market.
“It is a volatile rate market driven by many rapidly evolving political events and economic situations,” concluded Proesel. “Moebs $ervices advises caution and calm. A quick, favorable end to the war with Iran is the best-case scenario for everybody. But prepare for this stubborn rate market to persist. Anticipate the Fed to hold rates for the near term, but perhaps a rate increase is not off the table before yearend.”