Federal Reserve Rate Hike Reflects New World of Sticky Inflation and Faster Growth

The Federal Reserve raised its benchmark interest rate to 3.9% on Wednesday, but this move is seen as less significant than broader economic trends that are driving up borrowing costs.

Economists point out that despite repeated shocks, the economy has been growing steadily and may even be accelerating, while inflation remains stubbornly high.

This shift marks a return to a higher-priced, higher-rate world, where mortgage rates are no longer in the 3% range. The average 30-year mortgage rate reached 6.95% last week, its highest level in over a year and a half.

Joe Brusuelas, chief economist at RSM, attributes this change to a shift from the pre-pandemic economy with weak consumer and business demand to the current economy where healthy spending is colliding with supply shocks and bottlenecks.