Economic growth to slow after strong second quarter, economist predicts: what this could mean for interest rates


As the economy shows signs of slowing, interest rates are holding onto record highs. Here’s what that might mean for future rates. (iStock)

The strong economic growth seen in the second quarter of 2021 could slow as concerns about the COVID-19 Delta variant increase. New data points to a slower labor market and estimates a declining growth rate.

“The good news is that the August inflation report was as expected,” said Dawit Kebede, senior economist at the Credit Union National Association (CUNA). “The slight monthly price increase of 0.3% is close to the pre-pandemic average but the annual rate remains high compared to last year.”

The consumer price index increased by 0.3% month over month in August, and was up 5.3% from the previous year, according to the Bureau of Labor Statistics (BLS). If you’re having trouble making your payments, consider taking out a personal loan to reduce your monthly expenses or pay off high-interest debt. Visit Credible to find your personalized rate today and see how much you can save.

The labor market is slowing down

A signal that economic activity is slowing amid rising coronavirus cases is the job market. In August, the employment report disappointed expectations when he added only 235,000 jobs. This came after two months of solid growth – 1.1 million jobs added in July and 962,000 in June.

“There are indications that the strong economic growth we saw in the second quarter is slowing,” Kebede said. “We know this because of the drop in the Consumer Confidence Index amid concerns about the Delta variant and a slower job market.”

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What slow growth means for interest rates

Slower economic growth could indicate that interest rates will stay at record highs, economists say. Mortgage rates are holding up; the current 30-year fixed-rate average mortgage is 2.86%, according to the latest Freddie Mac Data.

“It’s groundhog day for mortgage rates because they’ve been basically flat for over two months,” said Sam Khater, chief economist at Freddie Mac. “The rate maintenance model reflects market sentiment that the economic outlook has darkened somewhat due to the rebound in new COVID cases.

“As our collective attention is focused on the pandemic, fundamental changes in the economy are occurring, such as increased migration, the prolonged pursuit of remote working, increased use of automation and the focus on a more energy efficient and resilient economy, ”he said. . “These factors are likely to lead to significant investments and new post-pandemic business models that will drive economic growth.”

And when economic growth slows as the virus spreads, it could cause the Treasury Department to slow down its rate hike plans.

“The Federal Reserve is likely to delay the slowdown in its purchases of Treasury securities and mortgage-backed securities despite slight indications that the rise in durable goods prices is transient, as illustrated by the decline in the prices of passenger cars. opportunity, ”Kebede said. “It is because we are far from the maximum employment.”

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