SDSU economist: Expect slow rise in interest rates

By Jodi Schwan

Expect the Federal Reserve to end the year with interest rates between 1.25 percent and 1.5 percent and slowly increase them to about 3 percent in the next few years, said Joe Santos, an economics professor at SDSU.

Joe Santos

“Which, by the way, they have been saying for the last six or seven years,” said Santos, who spoke Thursday in Sioux Falls at an event coordinated by First Bank & Trust. “It’s always been that we’re going to regain normalcy in the next three or four years.”

Multiple macroeconomic factors have put the national economy in an almost unprecedented position, however. Unemployment nationally is just below 4.5 percent, and inflation is below 2 percent.

“The labor market tightens and tightens, and there’s no upward pressure on inflation,” Santos said. “This is a new world.”

The current expansion cycle nationally began in June 2009 and is at 98 months. The last such cycle, from 2001 to 2007, lasted 73 months.

“If we keep this up, lackluster as it may be, it is going to be very soon the longest expansion since the Second World War,” Santos said.

There has been a slowdown in economic growth, however, primarily driven by labor productivity, which has been flat since 2008.

While labor productivity in South Dakota, however, “is growing strongly,” Santos said, “it’s not at the level of many other states and not at the level of the U.S. in general. And wages are proportional to labor productivity.”

The Sioux Falls area is outpacing the rest of the state in wage and income growth per capita, he said.

The average income per capita is $54,912 and has grown 1.39 percent annually since 1998.

SDSU economist: Expect slow rise in interest rates

Expect the Federal Reserve to end the year with interest rates between 1.25 percent and 1.5 percent and slowly increase to about 3 percent in the next few years, said Joe Santos, an economics professor at SDSU.

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