It was just early last year that the markets introduced the concept of higher interest rates for a “longer period of time.” With the economy continuing to grow briskly and inflation coming down, but at a slower pace, there was no reason for the Federal Reserve to rush things. Thus, we pushed off predictions for a rate decrease. “Wait until 2024” became the rallying cry. Then came 2024 and guess what? Inflation progress leveled off and the economy has kept growing.

So, instead of a rate decrease in March, the markets delayed their prediction until June. Then the prevailing prediction became the second half of the year. Now we are stuck with a new concept – “higher for even longer.” Concerning this concept, we would like to say that “higher for even longer” is not the same as higher rates forever. Far from it. We can’t predict when, but interest rates will eventually come down. As a matter of fact, just a few weeks ago we saw the first evidence of an economic slowdown. The advanced measure of economic growth for the first quarter was under 2.0%.

This number is subject to revision, but a slowdown in growth would be welcome news for inflation fighters. Of course, it would be nice to see some additional progress on the inflation front. Tomorrow we will see the release of the Consumer Price Index for April. Unlike two years ago, we are not that far from the Fed’s goal of 2.0% inflation—we have come over 80% of the way. One last note—because of “higher rates for longer,” – when rates do fall, we now expect there will be a stronger refinance market than was expected at the beginning of this journey. Not as strong as the pandemic refinance demand, but the savings should be substantial if and when the drop happens.