Will Interest Rates Go Up Or Down? The 3 Biggest Indicators

By James Young on May 4, 2013
Will Interest Rates Go Up Or Down? The 3 Biggest Indicators

Especially in recent years, it seems like the news is always full of stories about the economy and the indicators that help evaluate it. Although it may seem these news stories are intended to do little more than cause anxiety (or boredom), in fact, these indicators can give consumers a fairly good idea of whether interest rates are going to rise or fall – and that can be very valuable information to anyone interested in buying or refinancing a home.

If you’re trying to determine if now is the best time to lock in a rate, you might want to take a look at the following three indicators to get an idea of how interest rates are likely to move. These 3 things are solid predictors for when interest rates go up or down:

  • Gross Domestic Product (GDP): Released four times a year, the GDP reflects the dollar amount of all the goods and services that were produced and sold by companies located in the U.S. during the preceding quarter. In general, the economy grows by about 2.6% per year; higher growth could signal inflation, which in turn can cause interest rates to rise, while a lower number indicates stagnation, often tempered by a dip in interest rates to encourage consumer spending.
  • Consumer Price Index (CPI): Released around the middle of each month, the CPI is one of the primary indicators of inflation. To determine the CPI, analysts look at the price of thousands of products within the last month to determine how those prices have shifted. When the CPI is high or there’s an overall increasing trend in the CPI, that’s considered an inflationary indicator, which can cause interest rates to rise. Conversely, a lower CPI can result in a drop in interest rates.
  • Payroll employment: Released on the first Friday of every month, this indicator offers data on overall employment, hours worked and earnings. Like the other two indicators, high monthly increases or an increasing trend are considered inflationary, and can cause interest rates to rise; lower numbers often indicate a drop in rates.

The GDP, CPI and payroll indicators are coincident indicators, meaning they respond quickly to shifts in the economy. This is in contrast to the unemployment rate which lags behind the economy; shifts in unemployment do not have an immediate impact on the economy and their effect on inflation is delayed.

Next time the news shifts to the economy, don’t let your eyes glaze over or your mind wander: Keeping an eye on these rates and understanding what they mean can help you decide whether to lock in a rate now or whether to hold tight, which can end up saving you lots of money in the long run.

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About James Young

My name is James Young- I love red wine, sailing, and playing guitar. I believe that everyday is truly a gift. I'm blessed to live five minutes from the sand in the beautiful city of Long Beach, CA. When I'm not assisting homeowners, you'll find me belting melodies with friends around a campfire, wandering the halls of an art exhibit, or watching ESPN re-runs until the sun comes up. So what am I doing here, you might ask? In a couple of sentences- I'm passionate about empowering first-time and experienced home buyers to make their dreams a reality. Whether it's saving thousands on your home loan, buying your first home, or acquiring your first investment property, I'm always here to help. Don't hesitate to ask questions, and please remember to "share the love"! :) #loveloans #loverealestate #lovelife!
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