Taylor’s version
Markets are probably wrong again about the path interest rates will take. Here’s why.
Economics | Interest rates
Investors reckon interest rates will start falling soon. But this expectation is wrong, and punters need to shake it off. Markets are terrible at predicting what interest rates will do. Over the last few cycles, futures markets, which allow traders to bet on future interest rates, have done a dreadful job forecasting where interest rates will go. Not only do traders suck at predicting the interest rate a couple of years out, they’re woeful at estimating where they’ll be in a few months.
Punters who listened to what markets were pricing have been wrong-footed at almost every stage. So, if we can’t rely on markets to tell us where interest rates will go, what can we use, and where will interest rates go? Arguably, interest rates will stay higher than the market has priced and longer than traders expect. Rate cuts are not on the cards any time soon.