Every year I predict rates will fall 2% in the following year, so I thought I was due for another prediction.
I’m also due for another prediction because the internet loves rate predictions, according to our Marketing Director.
In late 2022, I predicted rates would fall in 2023 – only to see them climb over 1.5%.
I even blogged about why I was so wrong in September of 2023: Why I Was So WRONG About Rates.
Rates did end up falling in 2023, but only very late in the year.
And rates did end up falling almost 2% from October of 2023 through September of this year – so I was sort of right – but they ended up climbing sharply again through mid-November as we all watched.
Lately though, they’ve been falling consistently, and we are now back to levels we saw last December.
And while rates never move in a straight line, I expect them to continue to trend down well into next year for a variety of reasons.
Today’s Jobs Report/Cooked Books
One of the reasons I think rates will fall is the obvious weakness in the labor market that has been covered up by (1) abnormal government hiring (that will soon stop); (2) too much credit given to part-time jobs; (3) the ignoring of all the people leaving the labor force or giving up on job hunts (unemployment rate would be much higher if we accounted for these people); and (4) the manipulation of data via inaccurate statistical estimates (Birth Death Model).
Today’s jobs report is case in point, as it came out initially looking very strong, with 227,000 jobs added in October. The less easily manipulated Household Survey, however, showed a much different picture of 355,000 job losses. This Kobeissi Letter post on X tells the story.
Why I Was So Wrong – Is Now Why I Am So Right
In the September 2023 blog I linked to above, I illuminated the many factors that kept the economy propped up in 2023. These factors included substantial savings, government liquidity injections, student loan forbearances, and massive government spending. Those savings are now gone, student loan forbearances are ending, and many of those government spending programs are ending as well.
Inflation
I’ve mentioned many times how analysts have been screaming that the Fed cut too soon, that inflation will rear its head again, and that we will soon see 5% 10 Year Treasury Yields (it’s at 4.16% as I type this). But, Stephen Hanke reminds us again and again that we need more M2 money supply growth to see more inflation. I remind readers often too that bond investors would not accept 4.16% yields if they thought inflation was an issue. And David Rosenberg recently reminded us on X that CPI inflation would be at 1.7% if rents were stripped out, and that rents are falling quickly in any case.
Reduced Government Spending
If the incoming Trump administration can reduce government spending by even half as much as they are predicting, the bond market will respond very positively, and rates will fall as a result.
Stock Market Correction
While I don’t think a correction is imminent, I think there is a likelihood we’ll see one next year, based on historical trends, the Buffett Indicator, insider selling indicators, Buffett’s cash position, and more. And – if stocks do correct, rates will fall sharply as investors will move from stocks to the safety of bonds.
Globally Synchronized Recession
Jeff Snider’s been warning us about this for years and it looks like it is finally setting in, as Germany, Japan, and China are all in a world of hurt – and the U.S. will not escape the fallout. This, along with the issues in the U.S. (weak labor markets, declining LEIs, commercial real estate problems, inverted yield curve, falling manufacturing PMI, etc.) are the reasons why Snider is more adamant about lower rates than ever.
My Rate Prediction for 2025
I think we’ll see rates bounce up and down, as per usual, but we’ll see rates trend down overall another 1.25% to 1.5% in 2025.
