Over the last 12 months we have seen rates rise about 1%. Last November the 30 year fixed was hovering in the high 3’s and now we see it flirting with 5%. So where do we see rates over the next 6 months? I see the 30 year fixed remaining fairly stable for the next 6 months. Why is that? Below I list the factors and conditions for my prediction:
- The economy is leveling off. While the economy over the last year has been hot it looks to now be cooling off a bit. With the Democrats now controlling the house look for less legislation to be passed. President Trump and the Republicans passed numerous bills that cut regulations and cut taxes that stimulated the economy. The odds of these type of bills now passing has decreased, therefore cooling off the economy.
- Inflation is in check. The 2 biggest factors in the Federal Reserve increasing rates are the economy and inflation. With the Consumer Price Index (CPI) and The Producer Price Index (PPI) looking to be in check, this will keep the Federal Reserve from raising the short term rates very much.
- Pressure on the Federal Reserve. While some believe the Federal Reserve works in a bubble with no outside pressure, I just don’t think that’s realistic. Yes they look at all the economic factors and inflation but they also hear the President telling them to relax and keep the rates down. President Trump is relying on low rates to keep the economy on track and he knows that the higher the rates go the harder it will be to keep the economy rolling. While I believe this pressure he puts on the Federal Reserve to keep rates low is the least important factor in their decision, it is still a factor.
- Federal Reserve Chairman Powell’s recent comments. Over the last month and a half the Chairman has made a 180. Yesterday, 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, yesterday’s comment provoked a major reaction in the financial markets. This to me is a strong indicator that the Fed is putting the brakes on a bit.
While their are certainly other factors that go into what happens with the rates, I believe these 4 factors are enough information to make an educated guess on where rates go in the next 6 months.