Federal Reserve predicts interest rates will eventually lower

Interest rates will eventually lower but will likely not go below 3.5% said economist Dr. Laura Ullrich with the Federal Reserve Bank of Richmond, Va. in a recent webinar put together by Barren River Area Development District. The webinar provided an economic outlook for the last quarter of 2024 and going forward into 2025.

BRADD serves Simpson and nine surrounding counties, as well as the incorporated cities in these counties. Operationally, BRADD has two service areas: planning and economic development, and aging and independent living. All 10 county judges and all the mayors of the cities inside these 10 counties are voting members of the BRADD board by virtue of their elected positions, and there are also citizen members representing each of the counties on the BRADD board said Judge-Executive Mason Barnes, who shared an overview from Dr. Ullrich's webinar during a recent fiscal court meeting.

Barnes said the webinar was one of the most interesting he has listened to. "There were things I learned about the Fed tracking housing and housing starts," said Barnes. "I had not idea the Federal Reserve tracked house starts, house prices. I had no idea they tracked all this."

In regard to recession fears, Barnes said the Fed does not currently see a real concern for an immediate recession, but a recession is possible in the next four years.

Barnes went on to say that inflation is still above the Fed's 2% target level. "In regards to inflation," said Barnes, "the Fed's take is that consumer spending is still pretty solid." However, Barnes explained, it now takes $121 to do what $100 could do in 2020.

Updates on nationwide housing starts and permits were also presented in the webinar, with Ullrich honing in on housing starts and permits in the southeast part of the United States, which are, in the estimation of the Federal Reserve, too low and currently in decline, said Barnes.

"And when the Fed reached out to talk with home builders and developers on what the problem was, the primary reason given was local government issues were the biggest reason for decline amongst most builders," continued Barnes. "The burden placed on developers and builders by local government bureaucracy, so to speak, was the main reason that you're seeing those declines." In Kentucky, said Barnes, a house that would have been $100,000 in 2013 is now about $220,000, and is predicted to be approximately $260,00 by the end of 2025.

It was also noted that "green energy" initiatives have been the biggest growing sector of manufacturing, in large part because green energy initiatives have received federal funding. "This is my take, not Dr. Ullrich's," explained Barnes. "But the federal government has shifted money into a market that they're wanting to get out into the public that the public is pushing back on. But those markets still continue to grow because there's federal funding for it."

Barnes said in his estimation, the two biggest takeaways from the economic update webinar have to do with labor force participation and interest rates.

"The Fed's anticipation of labor force participation is expected to continue to decline," Barnes said. Moreover, the Fed thinks that ultimately, whether we go through a recession in the next four years or not, interest rates will lower. But the Fed's outlook is that interest rates will never go below 3.5%. "If y'all recall, we had down into the tenth of a% interest rates on mortgages not too many years ago," said Barnes. "The Federal Reserve does not think that's ever going to happen."