Could U.S. Interest Rates Drop Even Lower?

Interest rates have been in the spotlight in recent years as the Federal Reserve continues to keep them low. Rates were originally dropped in response to the Great Recession that ended in 2009. However, the Federal Reserve continued to keep interest rates low in the years following the recession in an attempt to boost economic growth.

In 2018 and 2019, the Fed was scheduled to start increasing interest rates again since economic conditions had improved. Nevertheless, the decision was ultimately made to stop raising interest rates after the markets responded poorly to the possibility of them going up. Today, interest rates are now at record lows, and financial analysts are left wondering whether they will stay low or increase by the end of 2020.

Why Interest Rates Could Drop

Although there is always significant uncertainty associated with projecting future interest rates, it is possible that they could drop even further in 2020. As of now, the current federal funds rate is set at just 1.75 percent. The funds rate was 2.5 percent a year earlier in February 2019, so interest rates are trending down.

Monetary policy set by the Federal Reserve is ultimately driven by projected economic conditions within the U.S. and the overall economic conditions of the global economy. Interest rates around the world dropped precipitously in 2019, and this trend shows no sign of changing in the near future. Many central banks have set yields at negative rates in an attempt to stimulate national economies. Financial experts widely agree that the introduction of negative interest rates was a success since the global economy has been booming in recent years.

The global economy is currently strong, but it faces substantial challenges that could become serious issues in 2020. In recent days, the most important risk factor has been the coronavirus. If the coronavirus grows to become a global pandemic, supply chains would be significantly impacted on an unprecedented scale as countries move to block shipments and travel between nations. Moreover, the appearance of the coronavirus in a city could quickly lead to a quarantine, and this could prevent shipments from getting in and out while barring workers from engaging in productive activity. If the coronavirus continues to spread, it is almost certain that interest rates will plummet.

Impact on Lending

Piggy bank with calculator

When interest rates drop, lending generally becomes widely available as central banks encourage businesses and consumers alike to take on cheaper debt. Consumers can substantially benefit from reduced interest rates by being able to refinance their mortgages, car loans, and student loans at cheaper rates. Even shorter term lending, traditionally a more expensive option, could become more affordable. Unemployment would also drop as businesses borrow large amounts of money to expand their operations at inexpensive rates.

Consequently, both businesses and individuals looking for a new loan would reap the benefits of reduced interest rates. There would, therefore, be a boom in lending that would mitigate the cost of economic factors that could potentially damage economic growth. Of course, the Federal Reserve has not yet lowered interest rates, but many analysts believe that a dramatic reduction in rates is just around the corner.

Future Interest Rates on Personal Loans

Consumers who depend on personal loans should plan on interest rates potentially dropping in 2020. When rates come down, personal loans naturally become more affordable. Additionally, it is possible that it will become easier to qualify for personal loans as lending becomes more widely available. As a result, 2020 could well be a good year for savvy consumers who are looking to take out personal loans. Consumers will also be able to refinance their mortgages, and they will have the option to take out cash from their home equity when they refinance. The bottom line is that loan affordability should increase in 2020.

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