Short Rates Likely Staying Near Zero Through 2023
Kiplinger’s latest forecast on interest rates
The Federal Reserve at its recent Federal Open Market Committee meeting recommitted itself to keeping short-term interest rates near zero for the foreseeable future, which likely means through 2023. The Fed is also continuing to purchase $80 billion of Treasury securities and $40 billion of mortgage-backed securities every month, adding to its balance sheet. The Fed is “all in” to do whatever it takes to support the economy. Its leaders even added a statement to the meeting report that they will be willing to tolerate inflation levels above 2% for a time. That means that they will not raise short-term rates even if inflation begins to pick up, but left unspecified when they would act to curb inflation.
The 10-year Treasury yield has risen only modestly off its record low of 0.5%. While it is not likely to move lower, it should stay well below 1% for a long time, given how uncertain the progress of the economy’s recovery will be. Short-term rates will likely stay near zero for even longer — rates on 3-year Treasury notes are currently almost the same as rates on 1-month bills.
Average 30-year mortgage rates are likely to stay slightly below 3% for a while, and 15-year rates, a bit below 2.5%. Rates have been edging down closer to their normal relationship with the 10-year Treasury rate, now that refinancing applications have declined and lenders have to offer lower mortgage rates to attract more business. However, the gap with Treasuries is still nearly half a percentage point above its historical norm.
- 1Kiplinger’s Economic OutlooksRegularly updated insights on the economy’s next moves.
- 2GDP: -4.9% growth in 2020, 3.8% in 2021Kiplinger’s latest forecast for the GDP growth rate
- 3JOBS: States are reopening, but workers will come back slowlyKiplinger’s latest forecast on jobs
- 4INTEREST RATES: 10-year T-notes staying below 1.0% for a while - currently readingKiplinger’s latest forecast on interest rates
- 5INFLATION: 1.2% through ’20 from 2.3% at end ‘19 Kiplinger’s latest forecast on inflation
- 6BUSINESS SPENDING: Down 10% to 20% in '20Kiplinger’s latest forecast on business equipment spending
- 7ENERGY: Crude oil trading from $35 to $40 per barrel this fallKiplinger's latest forecast on the direction of energy prices
- 8HOUSING: Single-family starts down 6.6% in '20Kiplinger's latest forecast on housing starts and home sales
- 9RETAIL SALES: In-store holiday sales up 5%, e-commerce up 29%Kiplinger’s latest forecast on retail sales and consumer spending.
- 10TRADE DEFICIT: Widening 4% in ’20Kiplinger's latest forecast on the direction of the trade deficit.