Higher Interest Rates Emerge as New Normal in US Economy

President Donald Trump has renewed his attacks on the Federal Reserve after it hiked its benchmark interest rate Wednesday, but economists say the Fed matters less than broader economic trends when it comes to longer-term borrowing costs. The economy is growing steadily despite repeated shocks and may even be accelerating, while inflation remains stubbornly high.

Big tech firms are borrowing huge amounts of cash to plow into data center construction, contributing to higher interest rates. Analysts say the low-interest-rate, low-inflation world that lasted for nearly 15 years after the Great Recession is over and a higher-priced, higher-rate world is taking its place.

The average 30-year mortgage rate has reached 6.95%, the highest in more than a year and a half. Economists attribute this shift to a change from the pre-pandemic economy with weak consumer and business demand to the current economy where healthy consumer and business spending collides with supply shocks and bottlenecks.

Joe Brusuelas, chief economist at RSM, said that a big reason for the 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.

Companies and government are competing for bonds, driving up long-term interest rates. The yield on the 10-year Treasury bond has topped 5% this year for the first time since 2023, even before the Fed raised its benchmark short-term rate Wednesday.