7 Things that will Shape Interests Rates for 2010

If you have debt, interest rates can be the difference between affording your monthly payment, or worse, delinquency. Ever wonder what items can influence interest rates? If so, here's the answer.

1. Simple Economics - The Fed uses forecasts of real GDP growth (3 percent in 2010), unemployment (9.5 percent), and core inflation (1.25 percent) to create, in this case, short-term rates through the end of the year.

2. The Banks - The big banks, while profiting from costless funding, profitable trading businesses, and friendly accounting, won't be looking to get back into the taking credit risk business, meaning they'd prefer to be in the interest-rate risk business, which helps to cap the rise in rates.

3. Foreign Investment - With sovereign dollar portfolios showing signs of life late 2009, there could be as much as $1.2 trillion in 2010, helping to keep a lid on U.S. interest rates by flowing back into the country in the form of debt.

4. The Fed - With the Fed as the dominant buyer is specific markets, namely mortgaged-backed-securities, throughout 2009, expect them to pull back in 2010, which may very well cause interest rates to jump in all associated areas.

5. Government Deficits - The debt market this year may find mixed emotions when it comes to the U.S. federal, state, and local deficits, causing liquidity to have a positive influence or a with a lengthy recovery, we could be facing higher taxes, more debt, more defaults, less assistance, and inevitably a rise in interest rates.

6. Fannie Mae & Freddie Mac - With just over 88 percent of all mortgagers originating through September during 2009 had government credit support, meaning agency mortgage-backed-securities will likely become the fastest growing segment of the U.S. debt market, keeping interest rates competitive and homeowner borrowing at a controlled pace.

7. New Regulation - Moving beyond bank-by-bank oversight, while encouraging a hold on assets with the best liquidity and price, the broadening of regulatory oversight will see new litigation in 2010, resulting in a widening of interest rates in regards to liquid markets.

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