Interest Rate Forecast

Economic Forecasts

Long Rates Dropping Because of the Coronavirus

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 150,000 per month in ’20 More »
Interest rates 10-year T-notes staying well below 2% until coronavirus fears ease More »
Inflation 2.1% by the end of ’20, from 2.3% at end '19 More »
Business spending Unchanged in '20- coronavirus makes global outlook uncertain More »
Energy Crude trading from $50 to $55 per barrel until coronavirus fears ebb More »
Housing Total starts up 3.2% in '20 More »
Retail sales Retail and food service sales, excluding autos and gas, should rise 3.5% in 2020 More »
Trade deficit Widening 6% in ’20 More »

Expect an extended period of low interest rates, with the 10-year Treasury yield staying below 2%, and a flat yield curve. Long-term interest rates have dropped this week on fears that the China coronavirus will slow the global economy. While the virus may lower China’s quarterly growth, its economy should bounce back once containment happens, so rates should bounce back as well. But, that rebound could take a while.

The Federal Reserve stands pat again. At its meeting this week, the Fed kept the federal funds rate between 1.5% and 1.75%. Fed Chair Powell emphasized that current policy is appropriate given the current state of the economy, but again noted that the future path of Fed actions will depend on events.

The Fed will not raise or lower rates in 2020 unless the virus problem gets a whole lot worse. If the coronavirus appears to be materially affecting global growth, then the Fed could cut rates once just to boost confidence, but that scenario is unlikely for now.

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The bank prime lending rate sits at 4.75%, and average mortgage rates at 3.6% and 3.0% for 30-year and 15-year fixed-rate loans, respectively. Low mortgage rates should contribute to a good housing market this spring by making mortgages easier to afford. Low rates won’t boost business borrowing much, though.

Source: Federal Reserve Open Market Committee

See Also: America’s Yield Curve Panic Is Overdone