Broader Economic Trends Point to Higher Interest Rates

Despite President Donald Trump's renewed attacks on the Federal Reserve after it hiked its benchmark interest rate, economists say broader economic trends point to higher interest rates regardless of what the Fed does.

The US economy is growing steadily, despite repeated shocks, and may even be accelerating. Inflation remains stubbornly high, and big tech firms are borrowing huge amounts of cash to plow into data center construction while the federal government is still running large yearly budget deficits.

This shift returns the economy to where it was before the financial crisis in December 2007 that lasted through June 2009. Consumer and business spending were weak during this period, but now companies are using their cash stockpiles to build out AI data centers and borrowing even more money to do so.

The average 30-year mortgage rate reached 6.95% last week, the highest in over a year and a half. Economists say that a big reason for this change is a shift from the pre-pandemic economy in which consumer and business demand was weak, to the current economy in which healthy consumer and business spending is colliding with supply shocks and bottlenecks.

The yield on the 10-year Treasury bond topped 5% this year for the first time since 2023, even before the Fed raised its benchmark short-term rate. This has contributed to higher longer-term interest rates on government bonds that are competing for lenders.