Federal Reserve Rate Hike Reflects New Economic Realities

The Federal Reserve's latest interest rate hike reflects a fundamental shift in the global economy. The US is moving away from the low-inflation, low-interest-rate world of the past decade and a half, and into a higher-priced, higher-rate environment.

According to Joe Brusuelas, chief economist at RSM, this change can be attributed to a shift from a weak consumer and business demand economy pre-pandemic to one with healthy spending and supply shocks. The AI buildout has struggled with insufficient supplies of computer chips, electronic equipment, and workers.

As a result, companies are competing for bonds, driving up government borrowing costs. This has contributed to higher longer-term interest rates on US Treasury bonds, with the 10-year yield topping 5% this year.