Advertisement
Economic Forecasts

Interest Rate Hike? Not Til Next Year

With inflation tame and housing still hurting, the Fed will hold off.

The wait goes on. Likely it will be early 2011 when the Federal Reserve raises its benchmark interest rate. As usual the Fed wasn’t specific, but that’s the conclusion from reading between the lines of the latest policy statement by the rate-setting officials on the Federal Open Market Committee.

Officials see improvement in the economy since the last FOMC meeting six weeks ago, chiefly noting that the labor market “is beginning to improve.” But, the unemployment rate remains high, at 9.7%. And the key housing sector as the Fed puts it “remains at a depressed level.” At the same time, inflation isn’t remotely a threat.

Advertisement - Article continues below

So, no need to signal that a rate hike is getting close. The central bank has kept the fed funds rate, at which banks lend to one another on overnight loans, near zero since Dec. 2008. In turn, commercial banks have their benchmark prime rate at 3.25%. We see no change in either for the remainder of this year.

Fed officials will continue to insist that they’re on high alert for any sign of inflation, in an effort to reassure jittery bond traders. The Fed doesn’t want the markets to raise expectations of future inflation and send long-term interest rates upward. So look for yields on 10-year Treasuries to inch higher, hovering near 4% through midyear and heading toward 4.25% by year-end as the economic recovery takes hold and anxiety builds about budget deficits and the rising national debt.

See More of our Economic Outlooks:

Advertisement

Most Popular

What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

Americans are facing a long list of tax changes for the 2020 tax year...and it's never too early to start thinking about next year's return.
June 22, 2020
10 Tax Breaks for the Middle Class
tax deductions

10 Tax Breaks for the Middle Class

Tax breaks aren't just for the rich. There are plenty of them that are only available to middle- and low-income Americans.
June 30, 2020

Recommended

Travel Planning in the Time of Coronavirus
Travel

Travel Planning in the Time of Coronavirus

Insurance may not cover canceled vacations, but airlines and hotels may be flexible.
June 11, 2020
13 Things That May Soon Disappear Forever (The Pandemic Edition)
business

13 Things That May Soon Disappear Forever (The Pandemic Edition)

Emerging technologies (and now the COVID-19 pandemic) are putting an end to these familiar items and practices.
June 9, 2020
Don't Let the Drama Surrounding PPP Distract You from Running Your Business
business

Don't Let the Drama Surrounding PPP Distract You from Running Your Business

If you're so wrapped up in worry about your Paycheck Protection Program loan not being forgiven, think about the worst-case scenario. It might not be …
June 5, 2020
Another Epidemic to Worry About: Identity Theft
business

Another Epidemic to Worry About: Identity Theft

Fraud losses grew in 2019 and are likely to increase in 2020.
June 5, 2020