Interest Rate Forecast

Economic Forecasts

Short-term Rates Falling in Anticipation of Fed Rate Cut

Kiplinger’s latest forecast on interest rates

iStockphoto

GDP 2.6% growth in '19 More »
Jobs Job gains about 160,000 per month in '19 More »
Interest rates 10-year T-notes at 2.8% by end ’19 More »
Inflation 2.0% in ’19, up from 1.9% in ’18 More »
Business spending Up 5% in ’19 as global growth slows More »
Energy Crude trading from $60 to $65 per barrel in August More »
Housing 5.35 million existing-home sales in ’19, up 0.2% More »
Retail sales Growing 4.3% in ’19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’19 More »

Short-term interest rates are headed down because of expectations that the Federal Reserve will cut the federal funds rate next month. The Fed probably will lower the rate, at either its July 31 or September 18 meeting. The central bank wants to counteract the slowdown in manufacturing caused by the trade war.

The Fed could also cut rates in 2020 if an expected economic slowdown threatens to snowball. GDP growth should slow from 2.5% 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.

The yield curve inversion has lessened with the drop in short rates. An inversion occurs when the 10-year rate falls below rates of a year or less. This causes consternation because inversions have preceded past recessions. The decline in short rates should provide a bit of a boost to consumer borrowing. The bank prime rate that auto loans and home-equity loans are based on will decline to 5.25% after the Fed’s rate cut.

via e-mail: Kiplinger Alerts — Intelligence for your business success

Long rates are likely to stay in the low 2% range for now but may pick back up if the trade war relents. We expect that 10-year Treasury notes could rise to the mid-to-upper 2% range from today’s 2.1%. The 30-year fixed mortgage rate would also rise to 4.2%, and the 15-year fixed mortgage rate to 3.7%.

Source: Federal Reserve Open Market Committee

See Also: America’s Yield Curve Panic Is Overdone