A recent economist I respect said we should expect deflation over the next two years with inflation at the 3-5 year mark. Of course, no one has a crystal ball! These are assumptions based on what’s happening today and many things can happen to impact and change this assumption. Over the next one to two years, we believe that deflation is probably more of a risk than inflation. We expect that the recovery from the coronavirus downturn is likely to be slow, keeping inflation and interest rates low. As the economy mends, the Fed will gradually unwind some of its emergency lending. As loans get repaid, the Fed will let some of its holdings roll off its balance sheet, and start lifting interest rates—perhaps two or three years from now. We expect the Fed to keep the federal funds rate pegged near zero for at least two years, and 10-year Treasury yields to remain under 1% in 2020 and under 2% in 2021. Let’s remain positive and rooting for our communities and nation!

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