Be Spot On with Our Cycle-Based Advisory
Stay Ahead Of The Curve
Don’t Just Choose Within A Dot
The single No. 1 most common mistake homeowners make which we’ve seen repeatedly after 10 years in this business – you don’t choose based on the difference in rates within a particular dot or point in time on the interest cycle, rather you choose based on how to hedge yourself against the next most probable path of the curve!
Most of the time (as you can see above), the interest cycle is either going up or coming down. It hardly goes into a protracted horizontal path until it finds some equilibrium at the trough, i.e. hitting the neutral rate where the economy is neither overheating nor contracting. That’s hard balance to achieve most of the time.
No one tracks Fed action and follow the path of the cycle more closely than us. Work with a company that has a proven track record in helping clients “stay ahead of the curve”.
It’s not about who can give you the lowest headline number when it comes to mortgage rates, or simply repricing with your bank out of convenience. The big savings come from understanding and staying ahead of the interest rate cycle.
See our past forecasts (below) with specific recommendations in reverse chronological order.
OR
2025
Decline
Forecast 2025 (as of Apr 2025) and our Recommendation:
Contact us for access.
2024
Cycle Peak
Forecast of 2H 2024 (on Aug 2024):
Corporate earnings are beginning to weaken as unemployment rate ratcheted up to 4.3%. Fed’s delay in cutting rates is having effect on markets with long and variable lags of monetary’s tightening taking root after holding the funds rate at 5.50% for more than a year. What happens next depends on the pace of how fast U.S. economy deteriorates and how willing is Fed to respond to that with more aggressive cuts which we do expect.
SORA in Singapore to likely drop by end of the year to 2.50-3% range.
Forecast of 1H 2024 (on Jan 2024):
Fed will start to cut rates by 2H as corporate earnings start to show signs of weakening, as focus shifts from fighting inflation to the other mandate of maximum employment. We stand by our view that one key indicator to watch is corporate earnings.
SORA in Singapore, which has started to soften towards end of 2023, will start to drop more in 1H with pace gathering when Fed starts to cut.
2023
Pause
Our Recommendation in 2023:
Overall, our recommendation this period has been sound on staying flexible with an exit option after 12 month, either with a 1Y lock or at least with an opportunity to review and reprice after 12M. This has helped many clients sidestepped that nasty drop in 2Y fixed rates by more than 100 basis points, from its peak of 4.25% earlier in the year (Q1) to the current level of 3.05% by the end of the year. Clients who took this advice can now renegotiate terms in 2024 especially if SORA comes down further.
Forecast of 2H (on Jul 2023):
Fed is looking increasingly likely to go at least two more hikes with fed funds rate going close to 6%. The banking crisis earlier in the year, which toppled one of the biggest name – Credit Suisse, may seem to have stabilised. But credit conditions remain tight with interest rates staying elevated.
We will need a recession in 2024 to reset prices and bring inflation down which typically happens 6 months into one. Barring some big exogenous events in 2H of the year or 2024, the most likely trigger for a recession will be the tight credit conditions. At the moment, corporate earnings seem to hold up well in a 5% interest rate environment. So are consumers, who will only feel the crunch when there are massive layoffs. The deciding element here then is time. It does looked very likely now that Fed will hold the rates high until at least mid-2024 or later, before we get to more pronounced economic slowdown and corporations slashing costs & labour. When U.S. GDP goes negative, there should be another leg down for S&P before the eventual bottoming out.
However, here in Singapore, we think there is still a chance SORA might dip towards end of this year or early 2024. We are a price-taker economy susceptible to China and global slowdown, albeit there is growth coming from services and investments. SORA can drop way before Fed starts to cut rates in 2H of 2024 (as shown in the 2007 period).
Forecast of 1H (on Dec 2022):
U.S. Fed has unleashed at unprecedented pace 425 basis points (4.25%) hike in 2022 but the job is not quite done yet, but near we think. We expect Fed to pause rate hikes by Mar, or latest by its May/Jun FOMC with U.S. economy hit by the full brunt of monetary tightening actions over the last 12 months. This will coincide with Eurozone at its bleakest point in economic contraction and China peaking with its covid cases.
How high is the terminal rate for fed funds is not as important as how long it stays up there (until inflation is on a sustained down trend). With the three biggest economies of the world U.S., Euro & China in contraction, we’ll not be surprised if rate comes down from its peak in shorter than 6 months. Though historically it always come down within 12-18 months we observed.
2022
Fastest Ever Hike
In the fastest ever monetary tightening cycle on record, U.S. Fed increased the fed funds rate by a whopping 4.25% over 9 months in consecutive 7 FOMC meetings (Mar 0.25%, May 0.50%, Jun 0.75%, Jul 0.75%, Sep 0.75%, Nov 0.75%, Dec 0.50%) to end the year at 4.50%!
This exceeded even our most hawkish forecast revised as the year progressed. Fed even did 4x jumbo-sized 0.75% hike to shock financial and stock markets into one of the biggest correction with S&P crashing down to 3500. The story continues to unfold into 2023 as no one can say for sure if we have seen the bottom yet for stocks.
However at the height of uncertainties when prices skyrocketed following the sudden Russia-Ukraine war, we were right to predict that we are not going to enter another era of runaway inflation of the early 1980s where it went to 15% and interest rate soared to 20% in U.S.
As we end 2022, we are seeing green shoots of inflation peaking and turning the corner, with major developments of China re-opening from covid lockdowns, as well as more signs of impending recession which will take the heat off Fed in 2023.
Our Recommendation:
Forecast (18 Jul 2022): The biggest worry for the Fed now is inflation expectation getting entrenched in the U.S. leading to wage-price spiral (businesses increasing wages to help workers fight inflation and passing on such costs via higher prices leading to more wage inflation). Hence, we are raising the year-end target for Fed funds by more than 100 basis points to hit 3.50%. We believe after Fed front-loads all the rate hikes by Q3 (0.75% in July, another 0.50% in Sep), it will continue with the usual 0.25% hikes in the final two FOMC meetings in Nov & Dec. In fact, we think Fed will continue to hike gradually going into 2023 until inflation shows consecutive months of decline or reaches below 5%. That could happen by Q2 of 2023 by which time Fed funds will be in the 4% range.
Forecast (23 Apr 2022): We do not think we’re entering a repeat of the Great Inflation era of 1965-1982 when inflation hit almost 15% and Paul Volcker Fed hiked rates to over 20% in order to tame the beast but not before tipping the economy into severe recession in 1981-1982. Three factors might explain this: (1) A new QE era after 2008 has ballooned Fed’s balance sheet to US$9T which creates a persistent deflationary environment for decades and Fed seems unable to get out of it (2) Inflation forces are different in the internet age where there is lack of pricing power, any market inefficiencies or excess are revolved quickly through technology (3) Demographic shift with a greying population in most developed economies. Read this excellent resource for a better appreciation of what happened during the Great Inflation period.
Forecast (14 Mar 2022): With Russia’s invasion of Ukraine a major event, market has pared down some rate hikes expectation for 2022. As war exacerbates the inflation situation with sky-rocketing oil & commodities prices, we maintain our forecast of a 0.75% hike by July.
Forecast (4 Feb 2022): (This was before the war in Ukraine where Russia invaded on 26 Feb) We make a bold forecast that we will see tail end of the pandemic this year. There might be one more VOC (variant of concern) but it will be largely contained with effective therapeutics/vaccine in 2022. As such supply chain disruptions in China will ease in 2H but inflation might remain elevated with global recovery hence Fed will still need to act quickly to bring the target rate close to 1.50% by end 2022. There will be stock market corrections especially in Q3. Fed will hike total 0.75% in by July which could see even one big hike of 0.50% in 1H; there might be slight pause in 2H as stock market recovers from the shock but Fed might continue with 1-2 more hikes (0.50) later in the year to bring the funds rate to the range of 1.00-1.25 by end of 2022.
2020-2021
The Plateau
Rates nosedived in March 2020 at the peak of the pandemic (lock-down period) where U.S. Fed slashed the fed funds rate first by 0.50% (3 March) on Sunday night, followed by a full 1% cut from 1.25% down to almost zero, and brought back QE (quantitative easing) this time unlimited. It kept up its ultra-loose monetary policies of bond purchases all through the 2-year pandemic. However, that is about to end with rate hikes on the cards – and we correctly predicted it will come no later than Jun 2022. Fed started its first hike in 3 years with 0.25% in FOMC Mar 2022.
Our Recommendation:
Forecast (16 Dec 2021): We expect Fed to ready itself to lift-off on rates as early as Mar 2022, or not later than Jun 2022.
Forecast (23 May 2020): Fixed rates still hovering at 1.50% but we expect it to eventually drop to 1.20-1.30%. Banks resist dropping fixed rates too quickly which erodes their interest income unnecessarily. It did eventually drop to our forecast 1.25% (13 Sep 2020) but went even below that to new historical lows of 1.10% by mid of 2021 (plus 1.00% for >$1m)
Forecast (10 Mar 2020): Banks will slowly adjust their spreads on floating SIBOR home loans and urged all clients to quickly lock down the spreads at 0.25%, which eventually risen to 0.80-0.85% with final interest stabilised at prevailing 1% level.
Throughout this low plateau phase, our strategic recommendation is to go on floating rate SIBOR or SORA (newly-launched 2H 2021) until such time it becomes clear Fed is reversing course.
2019-2020
The Fall
After 9 rate hikes over the span of 3 years (2016-2018) to reach 2.50% fed funds rate, U.S. Fed surprised the market with a reversal in policy stance by hinting in Mar 2019 that rates hikes were off the table, in the midst of worsening US-China trade war row. With unemployment rate in U.S. continuing in its down trend to decade low 3.4%, it puzzled the Fed why inflation is not rearing its ugly head. The Fed eventually executed up to three “insurance cuts” in Jul, Sep & Oct 2019.
Our Recommendation:
Forecast (5 Jan 2019): We expected the tariff war between Trump & China to abate by 2H of the year and Fed to resume its two forecasted rate hikes in the year to bring fed funds near its longer run “neutral” rate which we put it at 3% max out. But we got it wrong this time as persistently weak inflation despite solid wage gains & weakness emerging in the economy due to the trade row led Fed to seek safety via some “insurance rate cuts” to support the economy.
Forecast (23 May 2019): Yield curve first inverted on 22 Mar 2019 for the first time since 2007. We first put forth the theory (graphically, trajectory 3) that a major market crash tend to follow about a year later after the yield curve inverts. Or when Fed presses the pause button on rate hikes which happened in 2019. In an eerie way (more luck than skill), this foreshadowed the covid-19 crisis almost exactly a year later by March 2020.
At start of the Fall phase from 2019, fixed rates hit 2.58%! This is the point we switched to recommend floating rate home loans after fixed rate went above 2.10%. This was 6 months before Fed started cutting rates which vindicated our strategy. The idea was – there’s no way rate hikes can continue at the same pace of another 9 hikes or 2.50% in 3 years which will bring fed funds to 5% (black line in 2006!)! Market will crash long before that happens. Clients who took our advice benefited greatly when covid-19 hits one year later as they locked down SIBOR spreads of 0.20-0.25% and pay interest at 0.50% throughout this phase.
2016-2018
The Ascent
US Fed hiked rate for the first time in a decade in December 2015 (the spike in black line). However, you can see that SIBOR has gotten ahead of that a year back and was in fact retracing and giving back some of earlier increases. We call this a false start and is best explained by the sudden collapse of oil price in October 2014 from its high of US$150 per barrel, leading to a shock in the system and liquidity crunch. SIBOR, however, eased back in the next two years due to the slowdown in Singapore’s economy and a faltering oil & gas market that wrecked havoc on banks’ loan books. This was the time when DBS stock price retraced all the way back to $8.
For mortgages, many who knee-jerked into signing for fixed rates at the end of 2014 and early 2015 found themselves shortchanged as prevailing rates did not rise much as anticipated by the end of their 2-year lock-in period. In fact, it went further south due to a falling SIBOR in 2016.
The real ascent came after Fed’s first hike in 2015 which was to be accompanied by 8 subsequent hikes over a 3-year period to bring Fed funds rate close to 2.50%. By early 2019, fixed rate home loans in Singapore have soared to 2.48-2.58% as repricing banks urged and hurried more existing borrowers to reprice to fixed rate.
Our Recommendation:
Forecast (3 Jan 2018): Total of 3 hikes in 2018, primarily due to dramatic corporate tax cuts in the U.S. from 35% to 21% signed into law by Donald Trump by Christmas of 2017. We think inflation will start to run up on solid wage gains due to a tight labour market as companies expand/invest with huge lift in corporate earnings. Fed eventually hiked 4 times by the end of 2018, one more than our forecast. However, we were right to predict strong wage increases through the year which is the main factor that propelled Fed to add an additional hike.
Forecast (2 Jan 2017): The first year of President Trump’s office after 2016 election seen massive euphoria in financial markets which powered DOW to over 20,000 (threshold then). We predicted 2 hikes and added 1 more by mid-year review of our forecast but moderated our view on SIBOR here to hit only 1.30 instead of 1.50. Fed eventually did 3 hikes in 2017 and SIBOR ended the year on a last-minute surge to 1.50.
Forecast (31 Dec 2015): With most analysts pricing in 4 hikes in 2016 based on Fed’s dot plots, we think the more likely outcome is 2 with uncertainties still looming large globally with slowdown in China’s economy (yuan devaluation 2H of 2015) & a roiled oil & gas sector. We suspended forecasting in 2H of 2016 as watershed event of US Presidential Election makes it almost unpredictable. Fed eventually did only one hike toward end of the year on 15 Dec 2016.
Forecast (22 Oct 2015): Correctly predicated the first historical rate hike in a decade to be announced by Fed Chair Janet Yellen (17 Dec 2015) by Dec of 2015 rather than 2016, which kicked off a series of total 9 hikes over span of next 3 years.
During this Ascent phase, our primary recommendation was to go on fixed rate be it 2-year or 3-year, which risen steadily from a low of 1.30% to 2.00%. Those who locked down fixed rate in the 2H of 2016 got their timing spot-on after Trump’s election win and became real winners in this cycle. Still, there were some who lose out over-committing to 5 years fixed term as rates eventually did not rise up as much as feared. Lesson learnt.
2009-2014
The Long Plateau
This is the phase post financial crisis of 2008. US Fed slashed fed funds rate to zero and embarked on the initially-controversial QE (quantitative easing) programme over a 4-year period from 2019-2012 which would see it ballooned its balance sheet from US$1.5t to over US$4.5t by aggressively buying mortgage-backed securities, bonds & Treasuries. This released massive liquidity into the global banking system but the slosh of funds did not lead to hyper-inflation as feared by main critics of QE. What got inflated rather were financial/real estate assets all over the world as hungry investors chased after yields and returns which drove up stock market and property prices to unprecedented levels.
In terms of interest rate, you can see how the near zero Fed funds plus QE kept SIBOR down and flat at about 0.40-0.50% for almost 6 years from 2009 to 2014.
There’s also a transient phase dubbed a “False Start” where SIBOR here in Singapore has moved when oil prices crashed in Oct 2014 but came down subsequently in 2015 as Fed has yet to lift off on rates not until Dec 2015.
Our Recommendation:
MortgageWise commenced operations in April of 2014. Had we begun earlier, our recommendation in this phase of the cycle would be to stay on the lower floating rate (headline rate 1%) but retain flexibility in the loan as much as possible in order to adjust when things change. In other words, stay nimble and that means a shorter lock-in period would be preferred. True enough, no one was quite interested in fixed rate home loans during this time with homeowners refinancing from a 1% home loan to the next 1% home loan whenever the thereafter rate shot up.
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