Rates Due for Moderate Increase
|GDP||2.9% pace in '18, up from 2.2% in '17 More »|
|Jobs||Unemployment rate down to 3.8% by end '18 More »|
|Interest rates||10-year T-notes at 3.0% by end '18 More »|
|Inflation||2.5% in '18, up from 2.1% in '17 More »|
|Business spending||Up 4% in '18, spurred by expanded tax breaks More »|
|Energy||Crude trading from $55 to $60 per barrel in April More »|
|Housing||Existing-home sales up 1.0%, new-home sales up 7.5% in '18 More »|
|Retail sales||Growing 4.7% in '18 (excluding gas) More »|
|Trade deficit||Widening 5%-6% in '18 More »|
Long-term interest rates are heading up next year, but short-term rates will outpace them. The modest pickup in inflation will keep long rates from rising as much as short ones. Eventually, an anticipated inflationary hike will also increase long rates, but not for a while. The expected deficit increase that will accompany the recently enacted tax package will also boost long rates a bit.
The Fed will keep raising short rates because of falling unemployment and other indicators that show a tightening labor market. The Fed very much wants to stay ahead of any inflation that rising wages may generate. It will lift short-term rates by a quarter of a percentage point two to three times in 2018. That will put the federal funds rate at 2.0% to 2.25% heading into 2019.
We think today’s 2.5% yield on the 10-year Treasury note will hit 3.0% by the end of 2018. The bank prime rate, which auto loans and home equity loans are based on, will bump up from 4.25% to 5.0% or 5.25% by the end of 2018. The 30-year fixed mortgage rate is likely to increase to 4.4% from today’s 3.95%. The 15-year fixed rate should jump to 3.9% from 3.4%.