Economic Indicators that Help Forecast Interest Rate Movements

In the process of understanding interest rates, reasons why they fluctuate and indicators as to which direction they may go; the following background information and economic predicators can prove very helpful
Bond market financial lenders use highly complex systems based upon the rise and fall of the US’ Bond market in order to set interest rates
Competition interest rates set on mortgage loans are also based upon existing marketplace competition. Thus, should you need to secure a mortgage yet do not want to pay an inordinate sum in interest rates, it is advised that you compare rates and terms among varying lenders within your area.
Gross National Product (GNP) This cumulative tally of all the products and services manufactured within the US is by far the most significant published report. When findings indicate a greater than anticipated quarterly increase, the status is termed as inflation-producing. Quite often, the Federal Reserve Board may need to intercede and increase interest rates for the purpose of deterring future growth. In contrast, a sub-zero growth, may impact the Reserve Board in an opposite manner whereby they opt to lower interest rates in an effort to spur economic growth.

The Consumer Price Index (CPI) Determination of the movement increases and | or decreases that have occurred over a pre-defined time period among prices urban shoppers have paid for an established parcel of products. It is worth noting that the core CPI, all purchases minus food and energy, is viewed upon as the most telling determinant with respect to identifying the rate of inflation.

The Producer Price Index (PPI) Grouping of measurable indexes that track the average movement over a pre-defined period that occur with regard to the prices garnered by domestic producers of products. Hence, the PPI is a telling indicator from the seller’s vantage point as compared to the CPI which tracks price movements from the consumer’s viewpoint.

When greater than-predicted PPIs occur, the status is viewed to be inflationary, whereby declining bond prices causes interest rates to increase. In reverse, a lower than predicted PPI will result in a decline of interest rates. As PPI rates can dramatically fluctuate, it is best to employ a six month to a one-year combined average when attempting to determine an accurate depiction of interest rate movements.

Additional indicators include: national unemployment rates, cumulative consumer credit data and real estate housing sales trends.