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Economic Forecasts

Long Rates Still Staying Below 1%--for a Long Time

Kiplinger’s latest forecast on interest rates

Source: Federal Reserve Open

The Federal Reserve at its recent FOMC meeting recommitted itself to keeping short-term rates near zero “until the economy has weathered recent events,” i.e., for the foreseeable future. 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.

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The 10-year Treasury yield has risen only slightly 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 three-year notes are currently almost the same as rates on one-month bills.

Average 30-year mortgage rates are likely to dip slightly below 3% and 15-year rates, a bit below 2.5%, given the low 10-year Treasury rate. They have not fallen as much as would be expected, because of heavy demand for mortgage refinancing. Lenders can get higher-than-normal margins on loans as long as there is heavy demand. Applications to refinance are still more than double last year’s level.

Market Committee

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