Weak Consumer Sentiment a Setback for Bank Rates

Just as some positive momentum had been developing in the stock market, prices took a major tumble on Friday. This sudden reversal is typical of the twists the economic narrative has been taking lately, as the recovery seems in danger of petering out.

The drama extends to the outlook for bank rates, whose fate seems to lie in the economic balance. Savings account rates, money market rates, and CD rates all represent how much money a bank is willing to pay to attract deposits. Without a strong economy -- and with it the prospect for profitable investment and lending opportunities -- banks are less inclined offer higher rates to attract deposits.

Federal Reserve policies also have a hand in keeping interest rates low, and these too are likely to remain unchanged until the economy shows signs of sustained improvement.

In Friday's case, it was a combination of micro- and macroeconomic factors which tripped up the market. The micro factor was an earnings miss by Google -- meaning that the stock's earnings came in short of Wall Street expectations. The stock market had been rallying on a spate of positive earnings reports, which can represent a brick-by-brick building of economic strength. An earnings miss by as significant a stock as Google undermined the progress that had been made earlier in the week.

The macroeconomic setback last Friday was a disappointing report on consumer sentiment. Consumer sentiment is a tricky, and perhaps overrated, indicator. No meaningful recovery can get underway without consumers, but then again, consumers are often wrong about the strength of the economy. Employment remains the number one indicator to watch -- if that starts to build, both individual stock earnings and consumer sentiment will follow soon enough.

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