Where are interest rates headed?

Dec. 3, 2004 — Q: I am thinking of refinancing my house to a variable rate tied to the Libor rate. The European economy and the Euro currency are doing great. What is the chance of the Libor rate will go up much higher than our US current prime rate in the future? How much do you predict that the rate will to go in the next two to five years from now? — Cesar C., San Diego

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A: As luck would have it, the Answer Desk Crystal Ball just came back from the shop yesterday. The last time we hauled it out for a question on interest rates, it got all cloudy and then started smoking.

So we tried out your question. A fuzzy image of Fed Chairman Greenspan appeared and, amid heavy static, we could make out voices arguing heatedly about the U.S. budget deficit. Then, as sparks began flying, it made a popping sound and went dead.

So I guess it's back to the repair shop. (At the moment, we're on hold with customer service to see if the warranty covers Libor questions.) 

Meanwhile, keep in mind that there are two kinds of economists and financial analysts:

1) Those who can’t reliably forecast interest rates and;

2) Those who don’t realize that they can’t reliably forecast interest rates.