WASHINGTON — The cost of borrowing is moving higher again.
U.S. Treasury yields jumped Tuesday morning as investors increasingly bet that the Federal Reserve may have to raise interest rates again to contain inflation, pushing the benchmark 10-year Treasury yield to about 4.79% — its highest level since January 2025.
The move matters far beyond Wall Street.
The 10-year Treasury is a major benchmark for mortgage rates and other long-term borrowing costs, while Federal Reserve policy feeds directly into credit cards, home-equity lines, auto loans and business financing.
Markets are now pricing in roughly a 65% to 68% chance of a quarter-point Fed rate increase in September, a dramatic shift from the rate-cut expectations that dominated much of the earlier discussion around monetary policy.
The change follows Federal Reserve Chair Kevin Warsh’s speech at Jackson Hole on Friday.
Warsh made clear that the Fed remains uncomfortable with inflation.
The central bank’s preferred inflation measure, the PCE price index, is running at 3.7% over the past 12 months, while the six-month rate has accelerated to 4.1%.
Both are far above the Fed’s 2% target.
Warsh said the Fed’s “predominant focus right now should be on prices” and warned that if underlying inflation is not clearly moving back toward 2%, policymakers still have work to do.
Markets heard that as a warning that another rate increase remains firmly on the table.
Oil is adding to the pressure.
Renewed tensions involving the United States and Iran have pushed Brent crude back above $90 a barrel, raising fears that higher energy costs could feed another round of inflation through gasoline, transportation, shipping and consumer goods.
At the same time, investors are increasingly concerned about the enormous amount of government debt being issued.
The United States recently crossed $40 trillion in federal debt, and large Treasury borrowing needs mean more bonds must continually be sold to investors.
When investors demand higher yields to hold that debt, borrowing costs across the economy tend to rise with them.
For homebuyers, that creates an uncomfortable combination.
Mortgage rates have already remained stubbornly high, and a sustained rise in the 10-year Treasury could push them higher rather than delivering the relief many buyers have been waiting for.
For households carrying credit-card balances, the impact of another Fed rate hike could be even more immediate.
Most credit cards carry variable rates tied closely to the prime rate. When the Fed raises its benchmark rate, those borrowing costs generally rise quickly.
Auto loans, small-business credit and home-equity lines can also become more expensive.
There is one group that can benefit: savers.
Higher rates can keep yields on money-market funds, certificates of deposit and high-yield savings accounts elevated.
But for borrowers, the message from markets Tuesday morning is becoming increasingly clear.
The era of expensive money may not be ending yet.
If inflation remains stubborn and oil continues rising, the next move from the Federal Reserve may not be the rate cut consumers have been waiting for.
It could be another increase.
JBizNews Desk | Washington
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