There is no shortage of commentators making predictions about interest rates. This is because they can get the attention of just about anyone who has investments. Those who depend on interest income want higher rates, and those who have stocks and bonds generally prefer dropping interest rates.
It is possible to predict interest rates with better success than flipping a coin, but not in any useful sense. The market’s prediction on interest rates can be found by examining the current yield curve, which is a chart showing short-term and long-term borrowing interest rates. Typically, yield curves focus on government borrowing costs in the form of bond interest rates.
The Bank of Canada maintains data on yield curves going back to 1986. Here is the most recent yield curve data for the last day of August:
Typically, short term rates are lower than long-term rates because investors demand a higher return when their money is tied up longer. So, the yield curve tends to slope up.
Sometimes the yield curve slopes up by less than usual or even slopes down. This amounts to a prediction by the bond markets that interest rates will drop in the future. If the yield curve points up more than usual, this is a prediction that rates will rise in the future.
The problem is that these predictions are already built into the prices of all equities. If you become a yield curve expert who can see what a particular yield curve says about interest rates, you won’t be able to use this information to exploit market inefficiency because it is essentially the market that made the prediction. To make money, you need to know something that everyone else doesn’t know. You need to know something indicating that the yield curve is wrong in some sense.
I’m sceptical that anyone can predict interest rate changes over the next few years any better than the implied prediction of the yield curve. Even the Bank of Canada can’t reliably predict what world events will cause it to raise or lower rates. This is why I rarely listen to talking heads making interest rate predictions.