Forecasting Interest Rates Forecasting Interest Rates One of the frequent but least accurate financial forecasts is a forecast of the future level of interest rates. Typically, for every forecast of increasing interest rates there is a forecast of decreasing rates. When all forecasters unanimously agree on a consensus for future interest rates, they are typically all wrong as rates will inevitably move in exactly the opposite direction.
Economists use a variety of techniques to forecast interest rates.
The most basic is to use economics and history as a guide and to make a judgement about what an appropriate level of interest rates and their future course given the state of the economy and important economic variables. Since most economists disagree on how the economy works or what economic history means, this is more difficult than it seems. A comprehensive model of the economy might have hundreds of equations and many variables. The reason for this inaccuracy is simple. Interest rates reflect human behaviour which is highly complex.