Where Are Interest Rates Heading?

On today’s show we are looking at the evolving cost of capital for real estate investors. 

There seem to be 3 main variables that affect short term interest rates.

The first is the inflation metrics which quite frankly are showing themselves to be quite sticky. Tariffs and trade wars could also increase consumer prices. 

The second factor is employment and the third factor is the economy overall. 

Long term interest rates seem to be determined by a combination of supply and demand, combined with a sentiment of economic outlook. If the economy seems strong, then the feeling is that there will be less pressure on interest rates. The current tariff  regime affecting Canada, Mexico, China, and soon some European countries, could have economic backlash within the US. That could lead to economic contraction which in turn could cause the Fed to lower short term rates. The lowering of rates would likely cascade to the longer duration bonds. There are plenty of signs of economic weakness in the private sector. In fact, with the exception of artificial intelligence and AI related investment, I can’t see any sector of the economy that is growing right now.

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