Rates Due for Moderate Increase
|GDP||2.2% pace in '17, 2.6% in '18 More »|
|Jobs||Hiring pace should slow to 175K/month by end '17 More »|
|Interest rates||10-year T-notes at 2.4% by end '17 More »|
|Inflation||2.1% in '18, up from 1.9% in '17 More »|
|Business spending||Rising 3%-4% in '17, after flat '16 More »|
|Energy||Crude trading from $50 to $55 per barrel in February More »|
|Housing||Existing-home sales up 1.3% in '17 More »|
|Retail sales||Growing 3.8% in '17 (excluding gas) More »|
|Trade deficit||Widening 6% in '17, after nearly flat '16 More »|
Long-term interest rates are heading up next year, but will be outpaced by short-term rates. The modest pickup in inflation will keep long rates from rising as much as short ones. The deficit increase that would accompany tax legislation under consideration by Congress would move long rates up or down, depending on the final law, compared to current expectations.
The Fed will keep raising short rates because it is focused on the falling unemployment rate 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, and will probably lift short-term rates by a quarter of a percentage point once more in 2017, likely at its December 13 meeting. And it probably will raise rates at least twice in 2018. That would put the federal funds rate at 2.0% heading into 2019.
We think today’s 2.35% yield on the 10-year Treasury note will hit 2.8% by the end of 2018. The bank prime rate that auto loans and home equity loans are based on will bump up from 4.25% to 5.0% by the end of 2018. The 30-year fixed-rate mortgage is likely to rise to 4.4% from today’s 3.95%. The 15-year fixed-rate mortgage should rise to 3.7% from 3.3% currently.