Federal Reserve Chair Jerome Powell has indicated that longer-term interest rates are expected to remain high due to potential inflation volatility. During a recent conference, he emphasized the Fed's revised outlook on interest rates, suggesting a return to near-zero rates is improbable unless the economy enters a recession. Powell raised concerns about more frequent supply shocks, challenging the economy and the central bank's response. The Fed's policy rate has remained steady but a rise in real interest rates is directly impacting mortgage rates, which are linked to long-term Treasury yields.
The rise in real interest rates has a direct impact on mortgage rates, which are influenced by long-term Treasury yields. As yields climb, mortgage rates follow suit.
Many estimates of the longer-run level of the policy rate have risen, including those in the summary of economic projections.
We may be entering a period of more frequent and potentially more persistent supply shocks, a difficult challenge for the economy and for central banks.
Higher real rates may also reflect the possibility that inflation could be more volatile going forward than in the inter-crisis period of the 2010s.
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