Is It Possible to Predict Interest Rates?

Let’s talk about the elephant in the room: affordability. While not at an all time high, mortgage rates are higher than they’ve been for the lifetime of many prospective buyers. Couple this with a lack of inventory and continued high buyer demand, and you have many people being priced out of the market.

Keeping in mind that my team sells houses and not loans, I asked one of our favorite mortgage reps to join us in our team meeting this morning. We had lots of questions for him but I’m sure you could guess the first one that we asked: when are rates going to come down? Followed by: are they going to go up even higher? And, how can we know that they won’t go back up as high as they were in the late 1980s?

So let’s talk about that last one first. The primary reason was high inflation and the Federal Reserve’s actions to combat it by raising the federal funds rate – not much different than today’s reason for high rates. Economic conditions, contribute to inflationary pressures and high interest rates aim to reduce borrowing and spending, thereby slowing down the economy to control inflation.

It might be worthy to note that the U.S. President during the late 1980s was Ronald Reagan, followed by George H. W. Bush in the early 1990s. Both faced the challenge of managing the economy amid varying interest rates and inflation.

It is highly unlikely that rates will reach the heights seen in the late 1980s for several reasons:
  1. Monetary Policy: The Federal Reserve has become more effective at managing inflation and interest rates.
  2. Inflation Targeting: Modern central banks aim for low, stable inflation, reducing the likelihood of the runaway inflation that necessitates high interest rates.
  3. Globalization: Increased competition and cheaper manufacturing overseas help keep prices, and thus inflation, low.
  4. Public Expectations: Consumers and businesses expect lower inflation and interest rates, which can become self-fulfilling.
  5. Economic Tools: Policymakers have more tools and data available today to preempt and manage economic challenges.

Is It Possible to Predict Interest Rates? While unforeseen circumstances like wars, extreme economic shocks, or significant policy missteps could potentially drive rates higher, the prevailing economic frameworks make a return to the sky-high rates of the late 1980s less likely.

As far as the other, more immediate questions, there had been a general feeling that rates would likely come down before then end of 2023. But the Fed recently announced that there will be only two rate cuts, not four as originally announced – therefore keeping rates higher, longer. Which means that we might face additional rate hikes before we see any relief. If we look at history as a way to predict the future, we can assume that rates will come down at least a little in the months prior to the presidential election in 2024. How much of a change is hard to say. More on that here.

(Note: ChatGPT4.0 helped clarify the facts used to write this post.)

Did that help answer the question Is It Possible to Predict Interest Rates? We hope it did – if you have any lingering questions please reach out!

top basking ridge real estate expert Jennifer Blanchard at Berkshire Hathaway

Jennifer Blanchard Team

Berkshire Hathaway HomeServices NJ Properties

(908) 432-0318 |

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Jennifer Blanchard

Jennifer Blanchard is a Top Producing real estate agent in Basking Ridge with over 20 years of experience. She would love the opportunity to discuss any real estate questions you have.

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