Rising Interest Rates Are Causing Alarm. Heres What to Know.
If the recent surge in interest rates worries you, consider this: Despite all the headlines, the rise in both short- and long-term rates has brought them only back to levels viewed as entirely normal a couple of decades ago.In fact, from 1984 until the middle of 2007, average interest rates were generally even higher.During that period, the U.S.
economy was so strong, and rates so stable and the world so tranquil, that many prominent economists called it “the Great Moderation.”What may be most striking now isn’t just that the Great Moderation ended in a disaster, the great financial crisis and steep recession that began in late 2007.It’s that the interest rates that prevailed during that celebrated halcyon era are in sight.
The yield on the benchmark 10-year Treasury leaped from 3.97 percent on Feb.27, just before the start of the war in Iran, to more than 5.2 percent on Thursday.
The rising rates are causing widespread alarm.Already, at their current levels, interest rates are creating hardships for millions of people in the United States and abroad.Domestic mortgage rates exceeded 7 percent this week for the first time since January 2025, while costs are rising on credit card debt and student loans as well as on big capital projects, like artificial intelligence data centers built on tons of borrowed money.
Throughout the world, interest rates now hover at levels last seen decades ago.Yet the economy has prospered for long periods at elevated rates, as it did until late 2007.That’s why I am far less concerned about where rates stand now than about how rapidly they have risen, where they may be heading and what they signal about broader domestic and strategic political issues.The War With IranAfter repeated shocks and inflation surges from tariffs, and worries about swelling government deficits, the current jump in interest rates was set off mainly by the start of the war with Iran in late February and by the rising energy prices it unleashed.The war...