What Moves Interest Rates? Will Rates Fall?
We get asked time and again if we think rates could fall again, and our answer is “maybe.”
The Fed has indicated that they plan on raising short term rates a few more times in 2017. But, the Fed is not the only influence on rates. Other factors that influence rates include the following:
1. Economic Data. Negative economic news like increasing unemployment numbers or slow GDP growth will typically push rates down, as investors move from stocks to bonds in response to negative news. Conversely, positive news usually pushes rates up.
2. Inflation. Signs of looming inflation will push rates up. Investors want to make sure their returns exceed the rate of inflation. Weak inflation reports (or deflation signs) will push rates down.
3. Geopolitical crises. Major economic crises or military confrontations (especially if they involve the U.S.) will usually push rates down, as investors move from stocks to the relative safety of bonds. A recent example was the crisis in Greece, as it held rates down for a long time. There are several other countries in Europe, such as Italy, that could foster additional crises that would reduce rates.
4. Supply and demand (of and for mortgages) play a role too. Rates are held lower b/c the Fed is still buying mortgages (increasing demand). In addition, as refi opportunities dry up, demand for the remaining purchase mortgages increases and that too could push rates down.
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