by Eric Lendrum
The United States could be facing an era of prolonged high interest rates unlike anything seen in recent memory.
According to Axios, a number of major factors indicate that high interest rates could be the new norm in the U.S., including the movement of rates, the rate of inflation, and the recent outlook for the Federal Reserve’s policy in addressing these issues.
Despite hopes that inflation would go down, the first three months of 2024 have seen continued high inflation rates that have foiled the Fed’s plans to cut interest rates.
On Tuesday, Fed Chair Jerome Powell said that “[g]iven the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us.”
The two-year U.S. treasury yield has skyrocketed in the last several months, as have long-term yields. As of this morning, the 10-year U.S. treasury is yielding 4.63 percent, compared to 3.87 percent in February. This marks the highest that long-term rates have been since 2007.
“2024 is starting to look like 2015, but in reverse,” said Bank of America Securities economist Michael Gapen. “Then the Fed signaled hikes it could not deliver; now the Fed may be signaling cuts that the inflation data do not justify.”
Up to this point, the Fed’s approach has been to keep interest rates at 5 percent and higher in order to deliberately restrict economic growth, in the hopes that this will ultimately reduce inflation. But the fact that inflation has defied these efforts suggests that inflation may be here to stay, while also proving that high interest rates may no longer be as effective as they once were in restricting the economy.
– – –
Eric Lendrum graduated from the University of California, Santa Barbara, where he was the Secretary of the College Republicans and the founding chairman of the school’s Young Americans for Freedom chapter. He has interned for Young America’s Foundation, the Heritage Foundation, and the White House, and has worked for numerous campaigns including the 2018 re-election of Congressman Devin Nunes (CA-22). He is currently a co-host of The Right Take podcast.
Photo “Fed Chair Jerome Powell” by Board of Governors of the Federal Reserve System . Background Photo “Federal Reserve Building” by Board of Governors of the Federal Reserve System.
