As the Federal Reserve announced that they are keeping interest rates the same, there are signs that the top in interest rate hikes is at hand.
The news of no further increases in rates, combined with signs of slowing economic growth, are leading some economists to believe that rates will remain low for the foreseeable future. This would mark the end of a four-year period of rate hikes, as the Fed has hiked rates nine times since the start of 2015.
The U.S. economy is slowing. Employment growth has slowed, consumer spending has softened, and manufacturing orders have been declining. The slowdown is partly driven by uncertainty about trade and tariff policy, as well as a cooling housing market.
The Fed’s decision to maintain the current interest rate is based on these signs of slowing growth, and a desire to give the economy some time to adjust to the prior rate hikes. The Fed also noted that keeping rates at their current level would help to support consumer spending, business investment, and job growth.
The signs of a top in interest rates being reached go beyond the Fed’s decision, however. The spread between two- and ten-year bond yields has been narrowing for some weeks, pointing to a flattening of the yield curve. A flattening yield curve is often seen as a harbinger of a recession, as lenders are less likely to lend when long-term rates remain low.
In addition, the currency markets are also showing signs that the trend of higher rates may be nearing an end. The U.S. dollar has been slipping, which is usually interpreted as a sign that money is flowing out of the American economy. This suggests that investors are wary of holding U.S. assets when higher rates are too hard to come by.
The signs point to a top being in sight for interest rate hikes, at least for now. This is good news for borrowers, as they don’t have to worry about higher payments on credit cards and home loans, but it also means that lenders don’t have the potential for higher returns. With the economy showing signs of slowing, how long the reprieve from rate hikes will last remains to be seen.