An Indian Civilizational Perspective

Interest Rate Predictions Until 2010

Where are the interest rates headed? Are they headed up – as the realtors believe they are or going to be either same or get lower, as Bill Gross, PIMCO Chief believes? Here is an interesting story:

Bill Gross, if you don’t know, is the world’s biggest money manager. He controls at least $600 billion dollars, heading up the investments at PIMCO. Bill’s got most of that money in bonds, so his interest rate forecasts are incredibly important.

In his recent Investment Outlook newsletter, Bill shared with readers his interest rate forecast for now through 2010. Not surprisingly, it doesn’t fit at all with what your local realtor is telling you. Here’s what Bill believes is the range we’ll see between now and 2010:

Tack on an extra percent to make a guess about what mortgage rates might do over the next four years… putting them around 5.0% to 6.5%

But that is counterintuitive to most of us, isnt it? Why is Bill Gross betting on lower interest rates? Well, for one, they have been steadily coming down. And the current high may be a blip on the interest rate chart as were several before shown in this chart:

And here is his logic:


“For now, the continuing influences of globalization, technology advances furthering productivity, and asset destabilization policies… probably will allow global inflation to remain in moderate range bound territory between 1-3% for most economies.

Global real yields then… should stay reasonably low – perhaps 2% on average (lower in Japan)… Combining inflation, real interest rate, and term premium considerations mentioned above we come to the range forecasts [above] for the secular timeframe from 2006 until 2010.”

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