Inverted yield curve (again)

free4440273

interest rates are on the increase, despite what the punters think. if i was taking out a mortagage, i would probably go for a 10 yr fix.

exil

Professional economic forecasters don't predict much movement in interest rates
either way over the next 4 years. They're forecast to stay 4 to 5% (UK base rate).

As for the economy - basically more of the same - 2 to 3 % growth rate, unemployment about 1 million, inflation 2 to 3%, public sector deficit down slightly.

BTW these are independent forecasters, not government.

cloud_dog

Free, this is where I find a bit of a dichotomy in your position – I’m not saying you are wrong but I’m trying to reconcile the aspects. Usually when an economy is in trouble interest rates are lowered to stimulate the economy (whether this is consumer spending or industry investment). So the idea of a major economic downturn with higher interest rates is at odds, unless as some are saying it is the short term interest rate (yield) that is the anomaly.

I would appreciate it if you would expand on your position wrt my questions.

Thanks cloud_dog

free4440273

the point is, the bankers (bernanke, king) know that people will have to learn the hard way - house prices are still on increase (tuesday's report); people are spending senseless (still); utility bills and council tax on the increase; oil up, commodities up; gargantuan us deficit; the yen 'carry trade' which could unfold with disastrous consequences. Do not expect the powers that be to get the economy out of trouble at all times - sometimes people have to learn the hard way. japan is only just saying goodbye to deflation, and yet about to raise rates. ecb has raised rates and will do so again (inflation fears), us will raise rates at least twice more to kill the housing bubble and household indebtedness. yes, i agree, it's not about right or wrong, i don't see it as a competition (i know alot of people on here would call me wacko). i can provide some good news (!) - the inverted yield curve will have to stop inverting at some point, and indeed it is very close to doing so. does this mean we have escaped a recession? no, as i said before, the worrying thing for me is that the recession did not occur. that is not a good omen - in other words, we postpone both the length and severity of the recession. I am standing by my initial threads - recession-deflation-(and then) housing price crash. :eek: [others say a housing price crash will cause a recession - quite the opposite]. apologies for the broken record syndome. Try and have a nice and peaceful weekend.

exil

I take it you have sold your house already and are now renting.

free4440273

oh i see, one of those threads. yourself???

cloud_dog

Thanks for your response.

I suppose the thing I am trying to focus in on is interest rates. From some of your comments

.....japan is only just saying goodbye to deflation, and yet about to raise rates. ecb has raised rates and will do so again (inflation fears), us will raise rates at least twice more to kill the housing bubble and household indebtedness...

If as you say the US (for example) are likely to raise rates (and I would agree they will) another couple of rises (0.25pc each possibly) means they are nearer the top of the rate rise cycle than the bottom. I supose the question then is where are rates likely to go from there, i.e. stay flat(ish) or either small or dramatic cuts to stimulate the economy.

Basically I'm looking at a 5yr fix @ 4.69% or a BRT @4.49. TBH I'm tempted to go with the 5yr fix because it is only about £7pm more expensive and I will know where I stand in this world of uncertainty. Having said that I, sort of, do agree with you that a correction is on the cards but, therein lies my problem; for this to occur I would then expect interest rates to be cut to stimulate growth.

cloud_dog

free4440273

that's the difference here - you expect them to dig us out of a hole. clearly, i am a pessimist here (who me?!). i would probably go for a 10 yr fix. if i was to predict the future (clearly a man of many talents!!) i would say interest rates over the next ten yrs will average between 6 and 10 percent (a wide margin i know, but then a wide prediction). who knows, maybe i'll get called wacko again. (ok - wacko!)
Try and have a nice and peaceful weekend.

hobbesandco

I'm in the same quandary as clouddog. My mortgage discount rate is about to expire in June. Really struggling to decide whether to go for another variable mortgage or to go for 5 year fix. I'm tempted to go with the 5 year fix because:

-I think there are inflationary pressures building up
-the situation in Iran
-even if interest rates stayed the same now there wouldn't be much difference between fixed and variable rates
-may have kids in the next couple of years and would want the security of fixed payments

EdInvestor

no, as i said before, the worrying thing for me is that the recession did not occur. that is not a good omen - in other words, we postpone both the length and severity of the recession.

What makes you think that recessions are inevitable?They are not. Good economic policy can prevent them by removing the things that cause them ( high interest rates being one cause).

If they are prevented, this does not mean that they lurk in the background building strength ready to unleash themselves later on the unwary.Recessions do not have some kind of independent existence.They are just the sum of various economic figures.If the figures change, there is no recession.

Re one's mortgage rate:

...may have kids in the next couple of years and would want the security of fixed payments...

This makes sense: the rest may or may not happen, and may or may not have an effect on mortgage rates if they do: you cannot know, so there is no point in making decisions on this basis.