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Interest Rate Forecast – Is Inflation Right Around the Corner?

In March of 2009, I wrote an article predicting where mortgage rates were heading. The name of this article is “Mortgage Rate Predictions-What the Charts Are Telling Us.” At the time I wrote this article, interest rates were 6 to 6.5%. My article got a lot of very bad reviews because many readers thought I was off my rocker for predicting mortgage interest rates would hit 4%. Actually, there were many more predictions in this article which all came true. So, I’m proud of my article. Now, I will attempt to predict what will happen to interest rates in the future.

Looking at the interest rate charts, it is easy to see there is very little volatility. So, it is very unlikely an upward swing will bring about a downward swing that will break through the low interest rates we are now seeing. In other words, technically speaking, it would be difficult to see interest rates go significantly lower than they are in this interest rate cycle.

It Looks like Inflation is the Goal

Furthermore, from a fundamental aspect, it looks as if the Obama administration is doing everything they can to create inflation. Their refusal to let American oil companies drill for oil means there is little chance the price of crude oil will be falling. With any kind of growth in the economy, certainly, the price of oil will increase. This would be inflationary.

Also, since they have taken office, this administration has created a large amount of debt. The national deficit in the year 2007 was under $200 billion. In the year 2008 it ballooned to over $400 billion. Though this is a large deficit, there have been larger deficits in prior years. However, the projected deficit for the year of 2010 is $1.3 trillion!

Can We Survive a $1.3 trillion deficit?

Though this number is gaudy, it wouldn’t be all that bad if this deficit created massive growth. However, it has not. So, the Fed is trying to deflate the dollar as a means of deflating the deficit. In other words, they are printing more dollars and using these dollars to pay off our debts. This simply means the dollars we citizens have or will have, will be worth less than they are now. This means inflation. We can only hope it won’t turn into hyperinflation.

Even if it doesn’t, certainly it means interest rates will be going up very soon. How soon is anybody’s guess. However, since we are trying to pay off the deficit that is more than one 10th of our gross national product and we are trying to do so with inflated dollars, we could see interest rates go up substantially. Certainly, one would think 10% on a 30 year mortgage would not be out of the question within a year’s time. I very much hope I am way off with this prediction.