Kiplinger Interest Rates Outlook: Tariff Fears Keep Rates from Declining
Both the bond market and the Federal Reserve would have pushed rates lower if not for the potential inflation that may be caused by tariffs.

Kiplinger’s Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or to subscribe for the latest trends and forecasts from our highly experienced Kiplinger Letter team.
Interest rates would likely be lower than they are today, given an expected slowdown in the economy, if not for fears that tariffs will raise prices and possibly add momentum to inflation. Investors often seek haven from stock market volatility by increasing their holdings of bonds, driving bond prices up and yields down. And the Federal Reserve will often start cutting short-term interest rates if it thinks the economy is on shaky footing.
Last year, the 10-year Treasury yield dropped to 3.6% before the Fed started cutting rates, when it appeared that inflation would be brought under control. However, the 10-year’s yield quickly reversed course after the Fed actually started cutting short-term interest rates, on fears that lower Fed rates could allow inflation to rise again.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
This year, while rates dipped briefly below 4.2% in anticipation of a slowing economy, they soon moved back up to 4.3%. The 10-year Treasury yield will probably stay above 4.0% unless signs of a more severe economic slowdown start to emerge.
The Fed left short-term interest rates unchanged at its March 19 meeting because of all this uncertainty. The central bank is in a bit of a pickle. If it is confronted with an economic slowdown and rising inflation at the same time, which should it choose to address? It would normally cut rates to deal with a slowdown, and raise rates to counter higher inflation. So it will wait to make any rate changes, in order to see which problem it should address first. Also, the Fed doesn’t like to move if the direction of either the economy or inflation is unclear, preferring to wait until the data are more telling. The Fed feels that too many zigzags in policy will hurt its credibility.
The Fed slowed the pace at which it lets Treasury securities mature and run off its balance sheet to $5 billion per month, from $25 billion. This is technically an easing of monetary policy, since it means bond markets won’t have to absorb as many new Treasuries now. That could reduce long-term bond yields a bit. But the Fed left its runoff of mortgage-backed securities intact at $35 billion per month. The central bank would like to get non-Treasuries out of its portfolio as much as possible in order to avoid creating long-term influences on those asset markets.
Mortgage rates have dropped a quarter-point since long-term Treasury yields started easing. 30-year and 15-year fixed mortgage rates could ease a bit more if the economy weakens further. Mortgage rates are still higher than normal, relative to Treasuries, but whenever the Fed cuts short-term rates again, it will boost banks’ lending margins, which should eventually lower mortgage rates a bit more.
Top-rated corporate bond yields have edged down in tandem with Treasury yields, but low-rated bond yields have jumped with the rise in recession fears. AAA-rated long-term corporate bonds are yielding 4.8%; BBB-rated bonds, 5.4%; and CCC-rated bonds, 12.7%.
Related Content
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.
-
Stock Market Today: Dow Sinks 715 Points as Inflation Unrest Grows
Inflation worries are showing up in both hard and soft data.
By Karee Venema Published
-
What the Senate's Vote to Repeal CFPB Bank Overdraft Fees Cap Means For You
The Senate voted to overturn the Consumer Financial Protection Bureau's cap on overdraft fees. Here's what you need to know.
By Sean Jackson Published
-
Stock Market Today: Dow Sinks 715 Points as Inflation Unrest Grows
Inflation worries are showing up in both hard and soft data.
By Karee Venema Published
-
What the Senate's Vote to Repeal CFPB Bank Overdraft Fees Cap Means For You
The Senate voted to overturn the Consumer Financial Protection Bureau's cap on overdraft fees. Here's what you need to know.
By Sean Jackson Published
-
These Eight States Have the Most Expensive Home Insurance in 2025
If you live in one of these eight states, you’re probably paying $1,000 or more above the national average for home insurance.
By Rachael Green Published
-
Retiring With a Pension? Four Things to Know
The road to a secure retirement is slightly more intricate for people with pensions. Here are four key issues to consider to make the most out of yours.
By Joe F. Schmitz Jr., CFP®, ChFC® Published
-
How to Teach Your Kids About the Tax Facts of Life
Taxes are unavoidable, so it's important to teach children what to expect. Also, does your child need to file a tax return for 2024? Find out here.
By Neale Godfrey, Financial Literacy Expert Published
-
Stock Market Today: It's Going to Stay Choppy for Stocks
Auto-focus can show us a lot about uncertainty on the ground and in the stock market.
By David Dittman Published
-
Revocable Living Trusts: The Good, the Bad and the Ugly
People are conditioned to believe they should avoid probate at all costs, but when compared with living trusts, probate could be a smart choice for some folks.
By Charles A. Borek, JD, MBA, CPA Published
-
How to Plan for Retirement When Your Child Has Special Needs
When your child has special needs, your retirement plan should include a plan for when you'll no longer be able to care for them yourself. A five-step guide.
By Christopher M. Butterworth, ChSNC®, CRPS, CLU® Published