So, how long will this high inflation last?

Image: Photo source: Pixabay, vhsPfaffenhofen, CC0 Public Domain,

By Robert Romano

30-year mortgage interest rates shot up to 5 percent on April 14 according to the latest data complied by Freddie Mac, as banks adjust to the new normal of high inflation after 8.5 percent consumer inflation and 11.2 percent producer inflation was reported in March by the Bureau of Labor Statistics the past 12 months.

That was the highest reading since 2011 when rates were about 5.1 percent. Oct. 2018 came in at 4.9 percent. So, the current rates are not unprecedented, but prior incidences of higher rates came at times with much lower inflation.

When interest rates are rising, that means more mortgage-backed securities are being offered for sale than are being bought on the market by banks. In other words, banks are asking for a higher rate of return in order to make loans.

Typically, in economic cycles, interest rates tend to rise with inflation, albeit in this instance, it came belatedly after the Federal Reserve had been holding its own interest rate at near-zero percent since 2020 until just last month. Now that the Fed began raising interest rates in March, banks are immediately following suit.

How long it lasts is a good question. Mortgage interest rates are usually higher than the inflation rate, so the longer inflation remains elevated, then so too should mortgage interest rates. Also, the Fed typically begins raising interest rates about midway through an economic cycle, and then will start cutting them as a recession approaches.

But interest rates are a symptom — not the cure.

A better question might be how much longer the U.S. economy can continue growing before the current bout of inflation overheats the economy. In the short term, while inflation remains elevated, expect to see higher interest rates. And it might take a recession before the current bout of inflation comes under control, so stay tuned.

Self-Reliance Central publishes a variety of perspectives. Nothing written here is to be construed as representing the views of SRC.  Original here. Reproduced with permission.

By Robert Romano , Vice President of Public Policy at Americans for Limited Government Foundation.