Capital Economics: Interest rates expected to climb much higher in 2019

Rising interest rates are predicted to slow consumption and investment growth in 2019, according to the latest U.S. economics data from Capital Economics.

According to Capital Economics, the 2-year Treasury yield increased to 2.82% from 2.63% at the beginning of September. The 10-year yield increased to 3.08%, climbing from 2.84%. Mortgage rates usually track in line with the 10-year Treasury, meaning mortgage rates are likely to continue rising as well.

Notably, the Federal Reserve is expected to hike rates two more times this year and two more in 2019.

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The increase in market interest rates is already contributing to higher borrowing costs for households and businesses.

This is affecting the housing industry, as it was revealed that despite an increase of housing starts in August, building permit figures were weak and existing home sales held steady, according to the company.

Freddie Mac’s latest Primary Mortgage Market survey indicated mortgage rates increased for the fourth consecutive week.

“Mortgage rates are drifting upward again and represent continued affordability challenges for prospective buyers –especially first-time buyers,” Freddie Mac Chief Economist Sam Khater said. “Borrowing costs are moving right now for three main reasons: the very strong economy, higher U.S. government debt issuances and global trade tensions.”

On Monday, President Donald Trump will impose a 10% tariff on $200 billion of Chinese imports. The Chinese are expected to retaliate with a 5 -10% tariff on $60 billion of US exports, according to Capital Economics.

Furthermore, the president has already vowed to respond to the Chinese by implementing tariffs on a majority of remaining Chinese imports.

Capital Economics believes, China could possibly have a 25% tariff on all imports by the beginning of next year.

Combine all those factors and interest rates are likely to continue rising throughout 2018 into 2019 and beyond.