The Interest Rate Effect on Markets, Consumers and Industries in 2024

The current economic situation can be attributed to a combination of factors. Firstly, the recent increase in Treasury yields has played a significant role. Mortgage rates tend to rise in tandem with the 10-year Treasury yield, which is often seen as an indicator of investor confidence in the economy. Notably, the 10-year Treasury yield reached 4.8%, a level not seen since 2007, signaling optimism among investors. Additionally, the actions of the Federal Reserve have had a substantial impact. Over the past four decades, the Fed has gradually reversed a trend from the 1980s, when interest rates soared to nearly 19%. Mortgage rates typically decrease when the Federal Reserve adopts a more lenient approach to monetary policy. However, Fed Chair Jerome Powell decided to raise rates again, and at a faster pace than many first-time home buyers anticipated, in an effort to combat inflation. Consequently, mortgage rates experienced a sharp increase. For individuals in the housing market, this translates to a challenging scenario. Those fortunate enough to have secured mortgages at historically low rates, such as 3% during the pandemic, are in a favorable position. However, the housing market has essentially stalled due to the reluctance of homeowners to sell and lose their advantageous mortgage rates. As a result, there is limited inventory available, even for potential buyers. Looking ahead, the Federal Reserve has indicated its intention to maintain elevated interest rates. This suggests that mortgage rates may continue to rise, with some borrowers already experiencing rates as high as 8%. However, if the job market weakens in the future, the Fed could potentially ease its stance on rates, leading to a decline in mortgage rates. So, in essence, high interest rates have negatively impacted all high-ticket purchase industries, such as automobiles, airplanes, appliances, and housing. The federal reserve has elevated inflation to public enemy number one, and as long as inflation is not within the 2% target threshold, it appears that every other metric is sacrificial, so let the consumer beware. Instead of advising clients to have six months of cash reserves saved up, this market may require 12–15 months of strategic adjustments to ride out the current cycle of market volatility.