Inflation lower; what's the rate forecast?

Question

The most recent inflation numbers came back lower than expected, indicating that perhaps inflation has peaked (maybe). Here's a summary: https://www.cnbc.com/2022/11/1...

However, the last time we had inflation like this (late 70s/early 80s), rates increased and stayed up for a pretty long time (years); here's a graph of mortgage rates going back to the 70s:  https://fred.stlouisfed.org/se...

So, what's the forecast for rates now?

I've heard widely varying views on opposite ends of the spectrum--everything from "rates will go back down to 2021 levels in the next 12 months" to "rates will continue to go up significantly for the next 12 months, and will remain elevated for 5+ years"

What do you think, and why?

Elbert O. · Answer

I would expect a smaller fed rate increase next month, most likely 50 basis points. The Fed has communicated for months that they anticipated the rate would be around 4.4% by end of year, it's currently around 3.75 to 4 right now.I would anticipate a few more rate increases in the beginning of 2023 to get to around 5% -- and it will probably stay there for the rest of 2023 and hopefully not increase.  Remember, the goal is to get inflation down to 2 - 3%, we're still at 7.7%. If unemployment continues to tick upwards into the 4 and 5%, I would imagine the Fed considers a rate cut by end of 2023.

The Fed was already embarrassed by how wrong they got "transitory" inflation; they're not screwing around now, every communication they've made since March has indicated that they're taking it seriously and will continue hammering away.