“In a year, I think that there’s going to be less anxiety about the interest rates, and I’m hoping that they’re going to go down,” Dr. Mills, 69, said. “I have to put my faith in the fact that the practice will sell.”
Dr. Mills is one of many Americans anxiously wondering what comes next for borrowing costs — and the answer is hard to guess.
up sharply from 2.7 percent at the end of 2020. That is the result of the Federal Reserve’s campaign to cool the economy.
The central bank has lifted its policy interest rate to a range of 5.25 to 5.5 percent — the highest level in 22 years — which has trickled out to increase borrowing costs across the economy. The goal is to deter demand and force sellers to stop raising prices so much, slowing inflation.
But nearly a year and a half into the effort, the Fed is at or near the end of its rate increases. Officials have projected just one more in 2023, by a quarter of a point, and the president of the Federal Reserve Bank of New York, John C. Williams, said in an interview that he didn’t see a need for more than that.
“We’re pretty close to what a peak rate would be, and the question will really be — once we have a good understanding of that — how long will we need to keep policy in a restrictive stance, and what does that mean?” Mr. Williams said on Aug. 2.
The economy is approaching a pivot point, one that has many consumers wondering when rates will come back down, how quickly and how much.
several years before rates return to a level between 2 and 3 percent, like their peak in the years before the pandemic. Officials do not forecast a return to near zero, like the setting that allowed mortgage rates to sink so low in 2020.
That’s a sign of optimism: Rock-bottom rates are seen as necessary only when the economy is in bad shape and needs to be resuscitated.
In fact, some economists outside the Fed think that borrowing costs might remain higher than they were in the 2010s. The reason is that what has long been known as the neutral rate — the point at which the economy is not being stimulated or depressed — may have risen. That means today’s economy may be capable of chugging along with a higher interest rate than it could previously handle.
A few big changes could have caused such a shift by increasing the demand for borrowed money, which props up borrowing costs. Among them, the government has piled on more debt in recent years, businesses are shifting toward more domestic manufacturing — potentially increasing demand for factories and other infrastructure — and climate change is spurring a need for green investments.