Federal Reserve Rate Hike Reflects New Era of Inflation and Growth

The Federal Reserve's latest interest rate hike marks a significant shift in the economy, one that reflects a new world of sticky inflation and faster growth. The economy has undergone a structural transformation since the pre-pandemic era, where consumer and business demand was weak.

NOW, healthy consumer and business spending is colliding with supply shocks and bottlenecks, driving up prices. Big tech firms are borrowing huge amounts to build out AI data centers, while the federal government continues to run large yearly budget deficits.

This has led to higher interest rates, as companies and governments compete for bonds. The average 30-year mortgage rate reached 6.95% last week, the highest in over a year and a half, up from the low of around 3% seen in the 2010s.

Economists say that this new world is here to stay, with inflation outpacing wage growth for the past five months. The AI buildout has struggled with an insufficient supply of computer chips, electronic equipment, and workers, exacerbating the issue.