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Economic Forecasts

Long Rates Will Head Up Later

Kiplinger's latest forecast on interest rates

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GDP 2.7% growth in ’19, down from 2.9% in ’18 More »
Jobs Unemployment rate will decline further in '19 More »
Interest rates 10-year T-notes at 3.6% by end ’19 More »
Inflation 2.3% in ’19, the same as in ’18 More »
Business spending Up 7% in ’18, boosted by expanded tax breaks More »
Energy Crude trading from $65 to $70 per barrel in March More »
Housing Price growth: 5.0% by end of ’18 More »
Retail sales Growing at least 4% in ’19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’18 More »

Long-term interest rates have dropped a bit as some equity investors retreat to the bond market, which usually happens during stock market corrections. However, once the correction is over, long rates should head up again. The Federal Reserve’s rate hike program will put upward pressure on long rates well into next year. Also, the low unemployment rate and a tight labor market will keep upward pressure on wages. Though wage growth does not cause inflation in the near term, bond market participants will worry that fatter paychecks will prompt the Federal Reserve to prolong its rate-hiking program, and that worry will also boost long-term rates.

We think today’s 3.1% yield on the 10-year Treasury note will edge up to 3.2% by year-end and to 3.6% by the end of 2019. The bank prime rate that auto loans and home equity loans are based on will bump up from 5.25% to 6.25% heading into 2020. The 30-year fixed-rate mortgage is likely to go up to 5.3%, and the 15-year fixed-rate mortgage should rise to 4.7%.

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Higher interest rates will come to more savers. Big banks have been slower than small banks, online banks, and credit unions to reward savers, but their rates on money market accounts and CDs are likely to participate in the general upward move.

Source: Federal Reserve Open Market Committee

See Also: America’s Yield Curve Panic Is Overdone