Interest rates in the next few years

[UnrealizedPotential]

Since interest rates are so important to not only investors but to so many others I was wondering if anyone had an opinion on where interest rates are going. I realize no one has a crystal ball . Still, we all have opinions and if anyone would like to guess on where interest rates might be going and why ,I think it would make for an interesting thread since the topic is important to most of us on the forum. That is why I am asking, since I simply don't know enough to even make an educated guess.

 

[REWahoo]

... I simply don't know enough to even make an educated guess.

For the past several years financial experts (those who claim to know enough to predict future rates) have been wrong - way wrong. Why do you think this group will fare any better?

 

[UnrealizedPotential]

I just want to see if I can learn something. If I can't, I have lost nothing.

 

[brucethebroker]

A family member is an executive in the mortgage business. He thinks the days of mortgages under 5% are nearly over-most are up to 4.5 (30 yr. fixed) currently.

One mans' learned opinion..........

 

[brucethebroker]

BTW, he advises watching the 10 year Treasuries-says they are the most accurate to determine direction of mortgages.

 

[MichaelB]

I just want to see if I can learn something. If I can't, I have lost nothing.

How will you know if what you learn is correct or not?

 

[UnrealizedPotential]

BTW, he advises watching the 10 year Treasuries-says they are the most accurate to determine direction of mortgages.

I wonder if the 10 year reacts before the actual rate increase or in anticipation of a rate increase?

 

[foxfirev5]

Overall the bond market is pretty efficient. What you see is what you get. It's all priced in. Did you notice that all the price movement in the last month was prior to the Fed announcement?
Forecasts - forget it.

 

[UnrealizedPotential]

How will you know if what you learn is correct or not?

By observing what actually happens in the future.

 

[UnrealizedPotential]

Overall the bond market is pretty efficient. What you see is what you get. It's all priced in. Did you notice that all the price movement in the last month was prior to the Fed announcement?
Forecasts - forget it.

Before the December meeting it seemed bonds were going down, they were trying to get out in front of a rate increase. I didn't really make the connection then, but I do now. I am trying to learn so better decisions can be made.

 

[Danmar]

Very difficult to predict the unknowable.

 

[Senator]

Sine rates cannot go too much lower, I suspect that they will go up. I think the more important thing to prepare for is stagflation, not interest rates going up.

 

[DrRoy]

Very difficult to predict the unknowable.

+1 There is totally no way to know.

 

[VFK57]

To raise rates will make US$ stronger and trade deficit higher what in turn will affect negatively our economy, add to our budget deficit (interest on Debt) and increase the Debt. I am not a trained economist but looking at the US Debt clock numbers point out on above statement. Many would ask then why the Feds did raise in Dec 2016 and promise 3 more raises in 2017. May be economy is much stronger, deficit turned south and we do not need to borrow anymore and I am not aware of it (I hope). Yet it could be that the Feds raised the rate in order to attract more foreign capital into US instead of some of them fleeing the US Debt market.

 

[VFK57]

Besides I was looking for a higher 5 years CD rates after the increase but it looks like Banks stay with same rates. May be Banks need more time for them to react?

 

[racy]

I've accumulated some predictions (edited for bond's only):

In 2015, Jack Bogle said: 3% nominal over the next decade.
In 2016, Vanguard Research said: 10-year U.S. Treasury yield of 2.5%
In 2016, Michael Kitces said: Using Shiller PE, real returns of 1% for bonds through the 2020's.

Now ya know!

 

[beanctr88]

I think whatever happens will be dramatically different than the experts predict. Ten year treasuries will either end up at 4.50% or above at the end of 2017 if the economy heats up due to promised budgetary stimulus or these plans flop and the Fed will have to retreat at they'll head back towards 1.0%.

I expect 2017 will be volatile across all types of financial instruments and investments.

 

[GrayHare]

Since global interest rates have reached 5000-year lows it's easier to see them rising than dropping more.

 

[brewer12345]

I think the more important thing to prepare for is stagflation, not interest rates going up.

Stagflation is always the most dangerous outcome. Every ER plan should contemplate the possibility of extended high inflation/stagflation.

 

[COcheesehead]

I expect to rebalance to my set AA. Tax loss harvest. Invest monthly. Repeat as necessary.
I also read long ago that folks who say they know the future are either lying to you, themselves or in reality, both.

 

[Dwhit]

Stagflation is always the most dangerous outcome. Every ER plan should contemplate the possibility of extended high inflation/stagflation.

I was a much younger man during the Jimmy Carter days. High interest rates and inflation ruled the day, as I recall it. Stock and bond markets were not very attractive, but real estate and high interest cd's, etc. we're more favored investments. It was hard to stay ahead of inflation. Very different than today's 60/40 type asset allocation model investing.

Then I remember jumping on bonds as the Fed pounded down the interest rates, and enjoyed a profitable ride. But that was a long time ago, and I really knew very little about investing. Could be my memories are not really that accurate, but that's the way I recall it.

 

[Montecfo]

Stagflation is always the most dangerous outcome. Every ER plan should contemplate the possibility of extended high inflation/stagflation.

I think deflation is the most dangerous. We are pretty good inflation fighters. Just my opinion.

On short term rates, I seriously doubt we get 3 hikes next year. If we do, it should be pretty good news meaning economic growth has quickened.

Long-term rates i think will remain moderate. The drivers of low rates in this country remain in place, chiefly demographics.

 

[Senator]

I think deflation is the most dangerous. We are pretty good inflation fighters. Just my opinion.

On short term rates, I seriously doubt we get 3 hikes next year. If we do, it should be pretty good news meaning economic growth has quickened.

Long-term rates i think will remain moderate. The drivers of low rates in this country remain in place, chiefly demographics.

You are right, inflation can be cured by raising rates. Raising rates makes the dollar stronger, making imports cheaper and US goods more expensive. Jobs (and profits) go to other countries.

The economy is great for about 20% of Americans. If the economy slows, the other 80% of the population get even more crushed. The majority of the new population growth is low-wage, low skill workers. Higher wage people are retiring and dying. As automation improves further, there is even a lesser need for as many STEM jobs, and those jobs can be done in any country in the world. We are in the beginning states of global wage equalization.

I doubt that we will get any significant rate increases next year either, but banks make more money in a higher rate environment, and the Fed is made up of many member banks. Plus the Fed wants inflation, as it helps wipe out debt. Maybe starting higher rates can trigger inflation. Inflation also leads to higher tax revenues.

If rates go up and the economy doesn't improve dramatically, look for stagflation.

Definition: Stagflation is when the economy experiences stagnant economic growth, high unemployment, and high inflation. It's an unusual situation. A sluggish economy usually reduces demand enough to keep prices from rising. As workers get laid off, they buy less. As a result, businesses lower prices to attract whatever customers remain. Slow growth in a normal market economy prevents inflation https://www.thebalance.com/what-is-stagflation-3305964

 

[Danmar]

I expect 2017 will be volatile across all types of financial instruments and investments.

This is a common prediction. More volatile than recent past? More volatile than option pricing implies? Otherwise this prediction is a throw away.

 

[beanctr88]

This is a common prediction. More volatile than recent past? More volatile than option pricing implies? Otherwise this prediction is a throw away.

Yes to both. I think it is going to be a very wild ride for at least the next year as it is hard to tell what Congress and our new President will actually do and reactions to proposals, whether passable or not, will be very severe. With the Congress and White House being controlled by different parties the last four years it was clear that nothing of consequence would pass, thus reducing that driver of uncertainty.

Also adding to that uncertainty is our Fed tightening when everyone else is still loosening monetary policy. What do they see that we don't see here in the states? Meanwhile the European banks, China's and others have massive bad debt problems. Headlines and worries about those bad debt issues will likely lead to many wild swings.