Interest Rate Roller Coaster
🚀 What’s happening: Interest rates are sitting at 23 year highs, but experts are now predicting they will start to come down soon.
Why?
Recent datapoints signal that high rates are working to cool inflation.
Consumer Price Index (CPI) surprise. The latest CPI reading (this is basically an average of what we pay for stuff) came in lower than expected, telling us that prices in October were +3.2% from last year. Experts were predicting a +3.3% increase, showing continued improvement from September which was +3.7%.
What we focus on. We tend to focus on the Producer Price Index (PPI) more right now as this reading tells you what the companies who make your stuff are paying for their inputs (helping you determine whether companies will raise or lower prices for consumers). The reading here was also encouraging— with October price growth at +1.3% from last year vs. expert predictions of +1.9% and also below +2.2% in September.
So are we in the clear?
Yes, and… no. While we all welcome lower prices and growth, if the economic growth slows too much then our biggest worry will be a recession (layoffs, stock market correction, stagnant income, etc.).
Cautious comments on the consumer from companies like Walmart this past week have our eyes firmly watching consumer behavior over the holiday season to get a better read on where the economy is headed.
Ok, but where are interest rates headed?
Well, Wall Street is in the camp that rates will start to come down in 2024. UBS thinks the Fed could start lowering rates by March of 2024 with overall rates falling to 2.5% by the end of 2024 (they sit at about 5.25-5.50% now).
Most other Wall Street firms are also in agreement that rates will start to come down next year.
👪 Closer to home: Our view is that rates are likely to come down, but it may take a bit longer than people expect (unless of course we have that recession).
Inflation is a tough nut to crack and an overall interest rate right now of 5.25-5.50% is still well below prior historical peaks.
We would love to see real evidence that the CPI can get down closer to a 2% level before we start declaring victory.
Learn more about interest rates and inflation:
