Since I don’t have a crystal ball to tell the future, let’s look at the principles and then see if we can come up with a conclusion.
Factors and Principles that Determine Interest Rates
- The election result was a surprise to investors. Investors don’t like surprises. This caused a rapid selling of bonds, which pushed interests higher by .125 percent overnight.
- Any rapid change in rates settles back down along with investors’ nerves. Remember what happened with Brexit?
- Uncertainty brings higher rates.
- Good economic news brings higher rates.
- Interest rates were trending upward anyway, irregardless of, and before, the election. Last year at this time, 30-year fixed rates were averaging 3.5%. Now they are closer to 4%.
- Sometimes the market just goes with the momentum — for awhile.
- Other factors, larger on the global economic stage, influence interest rates more than the U.S. election. Specifically, the European Central Bank Announcement coming next month (and the anticipation of it) is having a greater impact on interest rates than President-elect Donald Trump.
- The President does not set interest rates. The global economic condition sets interest rates.
- The market is anticipatory. Investors try to guess what will happen tomorrow and then react accordingly today.
Back to our headline question: Where are interest rates headed? I’m sorry I can’t tell you exactly what will happen, but your crystal ball is as good as mine. If you are nervous about rates going up, lock in your rate and be secure.
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