A colleague recently asked me if I knew of a good source for reliable interest rate predictions. He was trying to decide whether to break his mortgage and pay the interest rate differential. He only wanted to do this if interest rates were headed back up and it made sense to lock in today’s low rates.
As is often the case, I knew the correct but unhelpful answer. Nobody knows for certain what will happen to interest rates. Even the U.S. Federal Reserve and the Bank of Canada can’t say what will happen to interest rates with any useful accuracy. These organizations react to world events more than they control them.
The yield curve gives the collective interest rate predictions of the financial markets, but rates could be higher or lower than predicted levels. We need to stop looking for financial prophets and make financial choices assuming a range of possible outcomes.
The curious thing about this line of reasoning is that I’ve had people agree with it and then proceed to explain what they think would happen with interest rates. Humans seem to be wired to make predictions even when we have no idea what will happen.