Home » Economic Outlook: Banking/Finance: Long-Term Rates Expected To Stay High, Short-Term Rates May Fall

Economic Outlook: Banking/Finance: Long-Term Rates Expected To Stay High, Short-Term Rates May Fall

By Mark Green

PNC economists project consumer spending growth will soften in 2024 as job and wage growth ease, high interest rates remain and households pad savings.

John Gohmann is the bank’s regional president for Lexington and says PNC is ready to support its financial institution clients through the current inflation and elevated interest rates that he believes “will continue to impact how financial institutions and their clients deliver on strategic business priorities.”

To this end, PNC’s Financial Institutions Group Advisory Team works with financial institution clients such as community banks to help them weather challenges and identify opportunities in today’s macroeconomic climate. These can include raising capital and maintaining liquidity, he said.

In the corporate and institutional banking space overall, Gohmann said, “We’ve seen companies in 2023 focus much of their efforts on managing expenses and increasing operational efficiencies,” and he expects this to continue in 2024.

Other trends Gohmann sees include continued acceleration and adoption of technology to maximize efficiencies, and with the upcoming 2025 sunset of several Tax Cuts and Jobs Act provisions increasing basic exclusion amounts for the federal estate and gift tax, PNC Private Bank associates will assist in clients’ estate planning needs.

As an independent community bank for more than 120 years, Traditional Bank has weathered countless changes. CEO Andy Baker says while growth has been steady the past couple of years, that too, may soon change.

“Increased competition for nonbank financial institutions, regulations and sustained higher interest rates are all factors,” he said, adding that higher mortgage interest rates will continue to contribute to housing shortages, posing challenges for first-time home buyers.

Despite this climate, the pace of new regulations and the intensity of fraud concerns that show no sign of slowing, the bank remains ready to serve clients, he said.

C. Kelly Buckley, founder and managing principal for Spectrum Financial Alliance, is quick to note that the Fed’s short-term interest rate increases over the past 15 months have not met the 2% inflation-curbing target, so it will need amending.

The firm’s internal study last spring showed a consistent pattern of interest rate reductions in the fourth year of a presidential election cycle—15 times over the past 17 cycles.

“We expect significant Federal Reserve rate reductions to begin in the first half of 2024,” he said. “This will help those with credit card balances and adjustable-rate loans.”

He also expects long-term rates to continue climbing, including 30-year mortgage rates that may even reach double digits within the next two years.

Government policy changes are something else his team is closely eyeing that may positively impact equity markets, and major economic growth may follow, Buckley said.