Bank Rates to Rise in 2011, Bank Economists Predict
June 22, 2010
Bank economists say we're on the path to a solid recovery, a double-dip recession is highly unlikely, and they expect the Fed will start raising interest rates next year.
The prediction about rising interest rates was unanimous among the dozen members of the American Bankers Association Economic Advisory Committee, which recently released its views on how things are going in the economy.
The group predicts the federal funds rate, now under the 0.25% ceiling of the current Fed target range, will rise to a median estimate of 1% by this time next year and 1.5% by the end of 2011.
What About Consumer Bank Rates?
The economists expect a "modest increase" by year-end 2011, with 30-year fixed mortgage rates rising to 6.15% and the 10-year Treasury to 4.4%. The current average mortgage rate is 4.75%, with an average 0.7 in points and fees, by Freddie Mac's latest reckoning.
Other predictions include:
• Consumer spending will grow by an average of 3% this year and next.
• Bank lending to business and consumers will pick up this year and even more so next year.
• Inflation will slow this year and then rise slowly to 1.8% in 2011.
• Low commodity prices, Treasury rates, and mortgage rates will offset impacts of the European economic crisis on the American economy.
Of course joblessness remains the key concern. The committee predicts the US economy will add 2.2 million jobs this year and another 2.5 million jobs next year. That sounds like a lot until you consider 8 million jobs were lost in the recession. Unemployment will drop -- but slowly -- from the current 9.7% to 8.5% by end of next year, the group says.
That means slow gain and continued pain.
Committee Chairman Stuart G. Hoffman described the recovery as a "lengthy rehab process."
