The 15-year cheap money era ended

Mortgage rates that hit 3% in the 2010s and dropped even lower during COVID are gone. The average 30-year mortgage now sits at 6.95%, the highest in over a year and a half.

Strong spending collides with supply gaps

Consumer and business demand is now healthy after years of weakness, but supply can't keep up. Oil prices are up due to the Iran war, and AI buildout faces shortages of chips, equipment, and workers.

Tech firms are borrowing heavily for AI

Companies like Google and Meta are tapping their cash stockpiles and borrowing billions more to build data centers. This massive investment competes with government bonds for lenders, pushing rates higher.

“Ever-expanding pools of capital are pouring into AI-related infrastructure of all sorts.”

Broader forces matter more than Fed policy

The structural shift from weak to strong demand means higher rates are inevitable. Fed decisions matter less than spending patterns, supply constraints, and government deficits when it comes to longer-term borrowing costs.

“The regime change in inflation and interest rates is the outcome.”

Treasury yields hit five percent

The 10-year Treasury bond yield topped 5% this year for the first time since 2023, driven by competition for capital from government and corporate borrowing.

Growth is imbalanced and wage-lagging

Economic expansion depends heavily on AI investment and wealthy consumers benefiting from stock gains. Meanwhile, inflation has outpaced wage growth for five straight months, squeezing ordinary Americans.

Policy choices drive inflation higher

Government decisions like the Iran war push up energy prices and inflation, which forces investors to demand higher interest rates on bonds. Presidential calls for lower rates conflict with policies that raise them.