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Economic Forecasts

Interest Rates Gradually Headed Higher

Kiplinger's latest forecast on interest rates


GDP 3.0% pace in '18, up from 2.3% in '17 More »
Jobs Slower job gains likely this year as labor market tightens More »
Interest rates 10-year T-notes at 3.3% by end '18 More »
Inflation 2.6% in '18, up from 2.1% in '17 More »
Business spending Up 7% in '18, boosted by expanded tax breaks More »
Energy Crude trading from $60 to $65 per barrel in June More »
Housing Price growth: 5.0% by end of '18 More »
Retail sales Growing 4.2% in '18 (excluding gas and autos) More »
Trade deficit Widening 5%-6% in '18 More »

Yet another inflation scare has caused rates to jump for the moment. Recently, rates spiked as prices of crude oil and metals rose. Other times, rates have dropped because stock market declines caused investors to move into “safe haven” Treasury securities.

Despite short-term volatility, long-term rates will slowly move up. Rising government deficits and an expanding economy with slightly higher inflation will likely keep rates on a modest upward trend.

The Federal Reserve is committed to raising short-term rates this year and next because it’s concerned about the tightening labor market. The Fed very much wants to stay ahead of any inflation that rising wages may generate and will lift short-term rates by a quarter of a percentage point twice more in 2018 (in June and December) after March’s hike. That would put the federal funds rate at 2.25% heading into 2019, where another three to four increases are expected.

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We think today’s 2.9% yield on the 10-year Treasury note will hit 3.3% by year-end. The bank prime rate that auto loans and home equity loans are based on will bump up from 4.75% to 5.25%. The 30-year fixed mortgage rate is likely to go up to 4.7% from today’s 4.5%. The 15-year fixed mortgage rate should rise to 4.3% from today’s 3.9%.


Higher interest rates are finally coming to savers. Although big banks have been slow to raise deposit rates, rates on money market accounts and CDs at smaller banks, credit unions and online banks have picked up to nearly match rates on Treasury bills and notes.

Source: Federal Reserve, Open Market Committee

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