Americans Learned a Lesson About Interest Rates. Washington Has Not.

October 19, 2023

Higher rates lead to more debt, and more debt begets higher rates, and on and on. Get the picture?

by Veronique de Rugy Reason.com

Congress and President Joe Biden’s administration seem unaware that rising interest rates are about as “transitory” as they told us inflation would be—meaning, likely to be around for quite a while. Why does this matter? Ask someone who’s been enticed by a mortgage with a variable interest rate that starts low and then rises quickly when conditions change.

Over the past month, yields on 10-year notes have risen sharply to 4.8 percent, well above the prevailing rate over the past 16 years. Meanwhile, two-year Treasuries are paying a 5.2 percent yield, and three-month Treasury bills are paying 5.5 percent—much higher than the rates projected by the Congressional Budget Office (CBO) in February. For this quarter, CBO assumed a ten-year yield of 3.9 percent; it’s currently 4.7 percent.