Interest Rate Forecast

Economic Forecasts

Expect Two More Interest-Rate Cuts by the Fed

Kiplinger’s latest forecast on interest rates

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GDP 2019 growth will be 2.3%; 1.8% in 2020 More »
Jobs Job gains of about 170,000 per month in '19 More »
Interest rates 10-year T-notes staying around 2% until trade war ends More »
Inflation 2.3% in ’19, up from 1.9% in ’18 More »
Business spending Up 5% in ’19 as global growth slows More »
Energy Crude trading from $50 to $55 per barrel in October More »
Housing 5.35 million existing-home sales, down 1.1% in ’19 More »
Retail sales Growing 4.5% in '19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’19 More »

New tariffs are likely to lead the Federal Reserve to cut rates a second time on Sept. 18 and again on Oct. 30. The central bank wants to counteract the slowdown in manufacturing and the general economic uncertainty caused by the trade war. The bank prime lending rate will decline to 4.75% after the third rate cut.

Rates on Treasury bills, notes and bonds dropped after President Trump announced a new round of tariffs, indicating investor pessimism about the strength of the economy and leading to a sharpening inversion of the yield curve. (An inversion is where short-term rates are higher than long-term rates.) The decline in rates is likely to boost the housing market and perhaps consumers, but may not boost business borrowing much because of the economic uncertainty.

The Fed could also cut rates in 2020 if an expected economic slowdown threatens to snowball. GDP growth should slow from 2.3% this year to about 1.8% next year, but could drop more if a U.S.-China trade deal doesn’t happen or some other negative economic shock occurs.

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While the trade war lasts, 10-year Treasury note rates are likely to remain 2% or a bit lower. Mortgage rates will stay around the current 3.6% for 30-year fixed, 3.1% for 15-year. If the trade war relents, we expect that 10-year Treasury notes could rise to the mid-to-upper 2% range. The 30-year fixed-rate mortgage would also rise to 4.2%, and the 15-year fixed-rate mortgage to 3.7%.

Source: Federal Reserve Open Market Committee

See Also: America’s Yield Curve Panic Is Overdone