The interest rates on mortgages, credit cards and business loans have shot up in recent months, even as the Federal Reserve has left its key rate unchanged since July. The rapid rise has startled investors and put policymakers in a tough spot.
Longer-term rates, like the 10- and 30-year Treasury yields, were less moved because they are influenced by factors that have more to do with the long-term outlook for the economy. But the resilience of the economy has also meant that price gains haven’t cooled as quickly as the Fed — or investors — had hoped. Bringing inflation fully under control may require interest rates to stay “higher for longer,” which has recently become a Wall Street mantra.
Although the term premium is hard to measure, the consensus is that it has been rising for a few reasons — and that’s pushing overall yields higher, too. Some of the largest foreign holders of Treasurys have already begun to pull back. For the six months through August, China, the second-largest foreign creditor to the United States, sold more than $45 billion of its Treasury holdings, according to official data.