Federal Reserve Rate Hike Marks Shift to Higher-Priced Economy

The Federal Reserve's recent interest rate hike marks a significant shift in the economy, signaling a return to higher-priced and higher-rate world. The move reflects broader economic trends, including steady growth and stubbornly high inflation.

According to Joe Brusuelas, chief economist at RSM, the change is due to a structural transformation of the economy, where healthy consumer and business spending are colliding with supply shocks and bottlenecks.

The shift has led to higher oil and gas prices, as well as shortages in computer chips and electronic equipment, hindering the AI buildout.

Mortgage rates have risen significantly, reaching 6.95% last week, the highest in over a year and a half. The average 30-year mortgage rate is now above 6%, compared to the 3% range in the 2010s.

Brusuelas noted that the economy's expansion is 'imbalanced' and dependent on the AI buildout and strong spending by wealthier consumers, who have benefited from rising stock prices driven by hopes that AI will lift profits.