"Rates are going up" - Part 1

People often tell me that they think rates are going up (usually based on something they read or heard). This is a reasonable opinion, but it is important to recognize that this has been a popular opinion for two decades.

http://www.nytimes.com/2015/02/24/upshot/we-keep-flunking-forecasts-on-interest-rates-distorting-the-budget-outlook.html?_r=1&abt=0002&abg=0

http://www.nytimes.com/2015/02/24/upshot/we-keep-flunking-forecasts-on-interest-rates-distorting-the-budget-outlook.html?_r=1&abt=0002&abg=0

This first graph shows interest rate forecasts made by the federal government, which presumably has some of the best financial data in the world, between the Federal Reserve and the Treasury. However, they’ve been consistently forecasting higher rates since the mid-1990’s:

If you’re anything like me, then you might be thinking the government is not very good at this kind of thing. So lets take a look at a survey of private sector, professional rates strategists:

https://www.fidelity.com/viewpoints/investing-ideas/rate-outlook-invest-for-uncertainty

https://www.fidelity.com/viewpoints/investing-ideas/rate-outlook-invest-for-uncertainty

Again, the results are not encouraging. This is not to say that rates will not rise or that rate predictions will be wrong. But it is clear that predicting the direction of rates is difficult, regardless of skill and/or resources. Perhaps most importantly, it should be noted that skilled professionals have been forecasting rising interest rates for 20 years!