The quarterly forecast of state tax revenue prepared by the state Economic and Revenue Forecast Council (ERFC) is based upon an economic forecast also prepared by ERFC. In my September 21 post on the update to the revenue forecast, I observed that materials released earlier that day by the Federal Reserve Board’s Open Market Committee (FOMC) suggested that interest rates will be higher next year than the ERFC currently forecasts. (I was referring to the fact that FOMC members had bumped up their forecasts of the appropriate federal funds rate. See the bottom lines of the table on page 2 of the FMOC’s Survey of Economic Projections.) Here are some more details:

ERFC provides forecasts of three interest rates, the 3-month treasury bill, the 10-year treasury note, and the 30-year fixed rate mortgage. In all three cases rates have moved up sharply over the last three weeks and now are well above the average rates EFRC has forecasted for the final three months of 2022.

For the 3-month bill, EFRC’s forecasted average for the 4th quarter of 2022 is 3.54% while the current rate is 4.01%. For the 10-year bond, ERFC’s forecasted average is 3.29%, while the current rate is 4.23%. (In both cases, the current rates were taken from the Wall Street Journal’s website today at 3:27 PM.)

For the 30-year mortgage, ERFC’s forecasted average for the 4th quarter of 2022 is 5.66%. Freddie Mac’s Primary Mortgage Market Survey reports that the average rate for the week ending October 20 was 6.94%.

The FOMC will next meet on November 1st and 2nd. Another 0.75% increase in the federal funds rate is widely expected. The ERFC will meet November 18th to consider revisions to the revenue forecast.