Let’s talk about rates. The benchmark 10-year Treasury rate rose by as much as 18 basis points the day after the election, pushing the overall rate on the bond to 4.47%. A rising yield on Treasury bonds raises the cost of the U.S. federal government when it borrows new money or rolls over existing debts. In short, the cost of borrowing increases and, therefore, more money is needed to pay interest rather than paying for tangible government programs. The 30-year mortgage rate trends with the 10-year Treasury rate, usually about 2% higher. As of November 7, 2024, the average 30-year mortgage rate was 6.79%, a significant increase from 6.08% at the end of September. In just over a month’s time, the monthly payment on a $500,000 loan increased 7.7%.
But the question you may be asking is, why did rates go up even in the wake of the Fed cutting the federal funds rate? Trump’s economic plans are inflationary and, therefore, increase rates. The U.S. economy is operating at close to capacity, and unemployment is low. Tax cuts will increase demand, but higher tariffs will push up prices. The U.S. is a net importer, so blanket tariffs will drive up the prices of an incredible number of day-to-day goods. Higher inflation will result, meaning the Federal Reserve will be more cautious about cutting interest rates.
