Mary: I’m Mary Walden with economist MW welcoming you to the economic perspective. Today’s program looks at the unexpected drop in interest rates. Mike, interest rates took a big jump at the end of 2017 and the beginning of 2017. For example, 30 year mortgage rates rose a full percentage point between November 2016 and March 2017. But recently those same rates have slid by one-third percentage point. What happened?
Mike: Summary Answer
- For long-term interest rates, especially, expectations about the economy are an important factor
- After Donald Trump was elected President, the financial markets expected pro-growth economic policies would be enacted
- Would create more jobs and faster growth, but also would generate higher inflation and more borrowing
- Inflation and borrowing tend to send interest rates up
- But, the pro-growth policies have yet to be enacted, and there are big questions about whether they can be
- So markets have revised their views on more inflation and borrowing – and result is some give-back of those higher rates
- But, expectations can change again!!
- I’m MW
Mary: And I’m Mary Walden for the North Carolina Cooperative Extension Service.