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WATER COOLER TALK: Interest Rates and Inflation

JULY 18, 2019 | THE PALOMAR GROUP

Interest rates are 120 bps lower than they were in November 2018. At the beginning of 2019, the Federal Reserve Chairman, Jerome Powell, predicted that the Fed would raise rates three times this year. Even though labor markets are strong and economic activity is rising at a moderate pace, the Fed has not raised interest rates. Carl Hudson, who is the economist for the Federal Reserve Bank of Atlanta predicts that interest rates will remain flat or continue to drop in 2019. Concern over a global slowdown is the main reason he thinks the Fed will not raise their rate.

The Fed’s target rate for inflation is 2%, but they have been below that level since 2012. Low inflation is one of the key factors for low wage growth. The US needs inflation to go up.

Real estate fundamentals are strong. 2020 should be a good year. However, if interest rates rise as fast as they have dropped the past 6 months, it will cause a global slowdown.

2005, 2006, and 2018 are the only years in recent memory without a bank failure.