Rate-Prediction-AccuracyWe find rate predictions more fun than astrology (and almost as accurate).

For those who give weight to economists’ rate models, the past month has been intriguing. Our dismal scientist friends seem to be getting ever more pessimistic.

Economists’ 2013 prime rate prognostication, for example, is now 1/2 point lower than it was a little over a month ago.

These are the latest consensus calls from the Big 6 Banks + Desjardins:

Forecast
Yr-end 2012
Chg
Yr-end 2013
Chg
Prime Rate
3.00%
No Chg
3.50%
-50bps
5yr
Yield
1.79%
-38bps
2.69%
-37bps

If the above held true (huge “if”), it would dovetail nicely with something like a short-term 1-year fixed strategy—for those qualified and suited to a 1-year.

Things to note:

  • Forecasts above are for year-end 2012 and year-end 2013.
  • “Chg” = The change (in basis points) in economists’ consensus predictions compared to our last forecast review a month ago.
  • Prime rate is assumed to remain at 200 bps above the overnight target rate in the future.
  • As usual, build in a fat margin of error when evaluating long-term rate projections.

Rob McLister, CMT