Interest Rate Forecast

Economic Forecasts

Fed Signals Desire to Stand Pat

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 around 2% until trade war ends More »
Inflation 2.2% in ’19, up from 1.9% in ’18 More »
Business spending Up just 2% in ’19 amid uncertainty of trade war More »
Energy Crude trading from $60 to $65 per barrel in March More »
Housing 3.5% price growth by year-end ’19 More »
Retail sales Growing 4.3% in ’19 (excluding gas and autos) More »
Trade deficit Widening 7% in ’19 More »

The Federal Reserve signaled that it wants to hold off on further interest rate cuts for a while. At its meeting this week, the Fed kept the federal funds rate between 1.5% and 1.75%. Fed Chair Powell expects that the economy has stabilized, but again emphasized that the future path of Fed actions will depend on events.

The bond market has also been more sanguine, as rates have changed little over the past two months. The yield curve – the gap between rates on short- and long-term bonds – has maintained its historically normal upward sloping line. This indicates that investors are not worried much about a possible recession occurring next year.

We also think the Fed will stand pat in 2020. However, slower growth in the economy will mean that the Fed has a smaller margin of error. If market turmoil develops, perhaps related to trade, then the Fed will likely cut at least once more. It would like to resume gradually raising rates in 2021, but a lot can happen between now and then.

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The bank prime lending rate sits at 4.75%, and average mortgage rates at 3.7% and 3.15% for the 30-year and the 15-year fixed rate, respectively. The decline in rates this year has aided the housing market – by making mortgages easier to afford – and perhaps consumers, but it will not boost business borrowing much because of all the economic uncertainty.

The yield on the 10-year Treasury note is likely to stay below 2% until economic growth picks up from its current soft spot.

Source: Federal Reserve Open Market Committee

See Also: America’s Yield Curve Panic Is Overdone