What Happens to Interest Rates During and After a Recession
A lot of people believe rates are headed higher for the foreseeable future. The FED has moved rates higher to battle inflation. The worry about rates going higher is that the economy will suffer and we will get a recession or worse. TPA believes it may be helpful to take a look a history. Below we look at what rates did 6 months, 1 year, 18 month and 2 years after a recession.
The results below show that either higher rates conquer inflation without a recession or the U.S. goes into a recession and that will eventually mean lower rates.
The average change in the 10-Year Rate 2 years after a U.S. recession is -0.33%. In other words, after a recession, sooner or later, rates decrease. This is somewhat backed up by the implied Fed Funds table which now shows that the implied Fed Funds rate starts to decline in 3/22/23; earlier than the historic average for the 10-Year.
The historic record seems to show that the FED will either tame inflation or they will have to surrender their rate increase strategy sometime in the next 1 to 2 years as the economy worsens due to rate hikes. Either way, the need and probability for ever-higher rates seems unlikely.
