Kiplinger’s Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or to subscribe for the latest trends and forecasts from our highly experienced Kiplinger Letter team.
Long-term bond yields have fallen below 5% as the Federal Reserve appears to be ending its rate hikes amid signs of a cooling labor market and economy. Long rates may rise again in the future, but likely not until later next year, after the slowdown in the economy passes.
Mortgage rates should be coming down a few tenths of a percentage point, as well. Thirty-year fixed rates had come close to 8.0%, and 15-year fixed rates had risen to over 7.0%. Mortgage rates typically move with the 10-year Treasury note’s yield, but are higher now than what would be normal in relation to the Treasury yield. The recent rise in short-term rates has crimped lenders’ profit margins on long-term loans. If the Fed cuts short-term rates next year, that should cause some extra reduction in mortgage rates.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
We think the Federal Reserve will leave its benchmark short-term rate alone at its next policy meeting, on December 13, and that it is likely finished raising rates for now. The Fed will view the recent rise in long-term bond yields as having created an additional slowing effect on the economy, and so will not feel the need for another short-term rate increase. But the Fed is not likely to cut rates until the second half of 2024 since it wants to make sure inflationary pressures have ceased. Chair Powell has repeatedly emphasized that it would be a mistake to cut rates too soon and risk letting inflation rebound. Also, he has indicated that the long-run “neutral” policy rate (the level consistent with stable inflation) may be higher than previously expected, which would mean fewer Fed rate cuts over the long run.
Other short-term interest rates have risen along with the federal funds rate. For investors, rates on super-safe money market funds have risen above 5%. Rates for borrowers have ticked up, as well. Rates on home equity lines of credit are typically connected to the prime rate (now 8.5%), which in turn moves with the federal funds rate. Rates on short-term consumer loans such as auto notes have also been affected. Financing a new vehicle now costs around 7.4% for a six-year loan, and 11.4% for a used vehicle.
Corporate bond rates are also beginning to ease a bit with the decline in Treasury rates. Higher-rated bonds’ yields had ticked up on expectations of a better economy and stronger inflation, while lower-rated bonds’ yields had risen due more to concerns about the financial health of borrowers with heavy debt loads. AAA-rated bonds are now yielding 5.3%. BBB bonds are averaging 6.4%, while CCC bonds’ yields are at 14.9%.
Source: Federal Reserve Open Market Committee
Related Content
-
The Best and Worst Ways for Retirees to Give on Giving TuesdayCash donations are certainly the most convenient, but you could be overlooking significant tax advantages by taking the easy way.
-
From Breadwinner to Retiree: How to Manage the Transition
Many people arrive at retirement with mixed emotions, including anxiety. Making the transition involves a profound shift in your mindset.
-
The Recent Uptick In Global Trade Won’t Last: The Kiplinger Letter
The Kiplinger Letter Global trade continues to fall as economic growth around the world cools.
-
Consumers Have $1 Trillion More Savings Post-Pandemic: The Kiplinger Letter
The Kiplinger Letter GDP data show Americans have more savings than they did pre-pandemic.
-
Once-Booming Gun Sales Have Slumped: The Kiplinger Letter
The Kiplinger Letter Since 2022, FBI background checks, a close proxy for gun purchases, have slumped.
-
The Era of Super-Low Interest Rates Could Be Over: The Kiplinger Letter
The Kiplinger Letter We’re likely never going back to the historically low rates that prevailed in late 2019 and early 2020.
-
Rental Market Will Slow Through 2023: The Kiplinger Letter
The Kiplinger Letter Expected growth in the rental market is likely to remain slow for the rest of the year amid a slow housing market and cooling economy.
-
What Is Comprehensive Coverage and What Does It Cover?
insurance This grab bag of coverages can protect you and your vehicle from theft, fire and forces of nature.
-
Passport Processing Times Speed Up: The Kiplinger Letter
The Kiplinger Letter The State Department credits an increase in staff and new technology with shrinking processing times.
-
White House Aims to Limit Access to Short-Term Health Plans: The Kiplinger Letter
The Kiplinger Letter The Biden administration's draft rule would restore several Obama-era regulations.
