By most accounts, the Fed will hold steady after raising the federal funds rate by a quarter point to 5.25% at the beginning of May. A Reuters poll found that 102 of 116 economists thought the Fed was done raising rates this year, and 30 believed they would lower it.
With inflation down from its high of over 9% last year to 4.9% in April of this year, it might seem like the Fed should reverse course now. But as Michael Gapen, chief economist at Bank of America, noted, “Inflation is more than double the Fed’s target rate, and the unemployment rate is below every FOMC participant’s estimate of the natural rate.”
Still, with inflation halving over the last nine months, several recent bank failures, and warning signs of a recession—that many, including myself, have been predicting for a year—still being present, there are a lot of reasons to think the Fed will begin reversing course on rates. If not at the end of 2023, then probably in 2024.
Economic predictions are always something to be wary of, but with that caveat in mind, I would be willing to bet interest rates will be lower in May 2024 than they are today. In the short term, things look good for interest rates.
In the long term, however, not so much., which is what this article is about
The Coming Upward Pressure on Long-Term Interest Rates
If you spend much time in real estate investing forums, you’ll hear something akin to “even now, interest rates are low by historical standards.” A lot of the old timers like to reminisce about “back in the day” when they had to walk to school several miles uphill in the snow both ways and how “we don’t know how good we have it” and the like.
And the old timers (whom we’ll be talking about more shortly) are right. Just glancing at the average 30-year mortgage rate for the last 50 years makes that obvious.
It’s…