Projected Interest Rates in 5 Years: Are We in for More Interest Rate Hikes?

Key Takeaways

• The Fed has raised interest rates to the highest levels in over 20 years
• The markets think there’s a very high chance interest rates will pause at the next meeting
• It’s hard to tell what they’ll look like in five years, but monetary policy, global factors and government policy will all factor

Interest rates are at scarily high levels right now. While the markets have mostly shrugged off the recession fears, and it doesn’t look like we’re heading towards an economic downturn, the Fed needs to stay the course until the job is done with bringing inflation in line. But what could the future financial picture look like? Here’s the lowdown.

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What’s happening with interest rates?

The last Fed meeting was in July and the central bank decided to raise interest rates to a target range of 5.25% to 5.5%. It’s the highest interest rate seen in over two decades and marks the eleventh hike from the Fed.

As for when these eye-watering interest rates might come down, the Fed was tight-lipped. “The Committee will continue to assess additional information and its implications for monetary policy”, was the official wording.

The CME FedWatch tool, which tracks the market feeling on interest rates, is convinced the next meeting in September will be a pause. It’s pegged that likelihood at 90%, but it all depends on the next set of inflation data.

Where could interest rates be in five years?

Five years is a long time when it comes to forecasting, so it’s hard to say what might happen in between then, but a few general factors will influence interest rates in the long term.

• Monetary policy: So far, the jobs market has held up despite increasing interest rates. If they tip too far in the opposite direction, the Fed could cut interest rates to stimulate the economy.
• Global factors: The war in Ukraine massively impacted inflation. With tensions between China and the West rising, we could see inflation and interest rates impacted depending on what happens.
• Government policy: We’ve seen another debt-ceiling crisis result in a credit agency downgrading U.S. debt and the Treasury coffers almost bottomed out. Higher government spending and borrowing could impact interest rates in the future.

The bottom line

Predicting what interest rates might look like in five years is tough, so the best approach an investor can take is to diversify your portfolio so you haven’t got all of your eggs in one basket. AI investing can make the process even easier to help keep you one step ahead.

The Fed’s alarm bells continue to ring despite inflation starting to ebb. Turn the tide to your favor with Q.ai’s Inflation Protection Kit, which curates a mix of TIPS, precious metals, and commodities — assets known to weather inflation. Our AI scans the weekly data, forecasts possible gains, and adjusts your investment allocation to help keep your wealth-building journey on track.

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