As the Federal Reserve prepares to make another interest rate decision, market participants are in tune with policymakers’ recent telegraphed mandate to keep rates high for longer.
The 10-year Treasury yield is already hovering around 5%, a 16-year high. Mortgage rates for a 30-year fixed term are near 8%, new car loans are at 7.4% and used car loans are at 11.4%, according to Edmunds.com.
The 10-year Treasury yield hovers around 5%
Many wonder how high rates could rise and whether we could return to levels like those of the 1970s and 1980s, when the federal funds rate reached nearly 13% in 1974 and 19% in the 1980s, according to data from the Federal Reserve.
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In an exclusive interview on FOX Business Network with Goldman Sachs CEO David Solomon, he downplayed that likelihood.
“I graduated from high school in 1980. So I remember that time. Well, I don’t think we’ll go back to that. I don’t think it’s likely. But I think we let’s live in what is a more normalized environment and not an environment where money is free,” he said during an appearance on FOX Business’ “Cavuto: Coast to Coast.”
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Probably the most normalized rate mentioned by Salomon is where rates are currently between 5.25 and 5.50%, he added.
“I think there is a risk that rates will rise. I think inflation is going to be persistent. It is particularly present at the moment around work. And so it must have an effect that is felt,” he said. added Solomon, emphasizing the Fed is currently “data dependent.”
Labor costs are rising since the UPS Teamsters recently won a new five-year contract worth about $30 billion. This comes as the UAW is in the process of concluding new contracts with Ford and Stellantis, while negotiations with GM remain ongoing.
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The Fed is expected to leave rates unchanged on Wednesday, but will likely leave the door open for another rate hike at the December meeting.
Despite another likely rate hike, Solomon noted that the U.S. economy can hold up.
“I think one of the big tailwinds we have as an economy is that most Americans who own homes are committing to long-term mortgages with fundamentally low rates that are locked in for a long period of time,” he noted.
As the Fed lowered rates, many Americans were given the option to lock in a 30-year fixed mortgage rate or refinance to as low as 2.68% in 2020.
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