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Kiplinger's latest forecast on interest rates
By DAVID PAYNE, Staff Economist
November 29, 2018
|GDP||Third-quarter growth a solid 3.5%, but slowdown is coming More »|
|JOBS||Unemployment rate will decline further in '19 More »|
|INTEREST RATES||10-year T-notes at 3.6% by end ’19 More »|
|INFLATION||2.3% in ’19, the same as in ’18 More »|
|BUSINESS SPENDING||Up 7% in ’18, boosted by expanded tax breaks More »|
|ENERGY||Crude trading from $65 to $70 per barrel in March More »|
|HOUSING||5.46 million existing-home sales in '18, down 1.5% More »|
|RETAIL SALES||Growing at least 4% in ’19 (excluding gas and autos) More »|
|TRADE DEFICIT||Widening 7%-8% in ’18 More »|
Market interest rates dipped a bit on Nov. 28 as Federal Reserve Chairman Jerome Powell made a dovish comment in a speech. Powell said that rates are “just below” the neutral level that the Fed wants. In an interview Oct. 3, Powell said rates were a “long way from neutral.” As a result, today’s comment provoked a major reaction in the financial markets.
It is likely that Powell is setting the stage for the end of once-a-quarter rate hikes sometime next year. The question is: Will the Fed raise rates four more times in 2019 as planned or stop earlier than that? We expect hikes for sure in December and March and likely in June, but the September 2019 hike looks to be off the table.
Long-term interest rates have dropped a bit since October’s and November’s stock-market turbulence as some equity investors retreated to the bond market, as they usually do during stock market corrections. However, once the market is corrected, long rates should head up again. The Federal Reserve’s rate-hike program will push long rates up well into next year. Also, the low unemployment rate and tight labor market will keep pressing wages up. Though wage growth does not cause inflation in the near term, bond market participants will worry that fatter paychecks will prompt the Federal Reserve to prolong its rate-hiking program, and that worry will also boost long-term rates.
We think today’s 3.1% yield on the 10-year Treasury note will edge up to 3.2% by year-end and to 3.6% by the end of 2019. The bank prime rate that auto loans and home-equity loans are based on will bump up from 5.25% to 6% heading into 2020. The 30-year fixed-rate mortgage is likely to go up to 5.3%, and the 15-year fixed-rate mortgage should rise to 4.7%.
Higher interest rates will come to more savers. Big banks have been slower than smaller banks, online banks and credit unions to reward savers. But their rates on money-market accounts and CDs are likely to head up.SHOW COMMENTS