What’s as difficult to do today as it was 3,000 years ago?

There are multiple answers, of course, but we have one in mind: predict the direction of interest rates. The difficulty is clearly explicated in the definitive interest-rate exegesis A History of Interest Rates by Sidney Homer and Eugene Sylla. Vetting reams of economic data apparently offer no more insight to the direction of interest rates today than the tossing of chicken bones on the floor did in 1,000 BC.

Just last month, interest-rate-increase chatter was rising in both pitch and volume. Traders were betting as high as 25% odds that Federal Reserve officials would raise interest rates at their September meeting. They were giving 60% odds that rates would be higher by the end of December.  After all, more Fed officials have publicly opined that interest rates need to rise.

But here we are heading into October and the yield on the 10-year U.S. Treasury note is down roughly 10 basis points in the past week. Quotes on many mortgage products are down as well. Indeed, mortgage rates are back down to the tight, low range that prevailed through most of August. Traders now give no better than 50/50 odds that we’ll see a rate increase by the end of December.

At the beginning of the year, the “smart” money (which we weren’t a party to) was betting two, if not more, interest-rate increases would occur before Dec. 31. At the risk of sounding annoyingly boastful, we were skeptical that any rate increases were imminent. One increase might come, but at the last moment, but no more. As we head into the home stretch, even one increase might be too many, especially after the International Monetary Fund recently lowered its global-growth forecast and the World Trade Organization recently lowered its global-trade forecast for 2017.

The conventional thought is that the Fed has to raise interest rates sometime. But that doesn’t mean that “sometime” must be sooner than later, or that later need not reside in the distant future.

Information provided by Jessica Regan.

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