Key points
- Higher rates slow economy, lower rates stimulate.
- Affect mortgages, corporate debt, sovereign bonds.
- Real rates (adjusted for inflation) drive asset values.
Example
Long-term rates don't move one-for-one with the policy rate: between 2022 and 2023 the Fed raised its rate by more than 5 points, while the 10-year Treasury yield rose about 3.4 points.
In history
The average 30-year US mortgage rate rose from about 3% at the start of 2022 to almost 8% in October 2023 as the Fed raised rates, sharply reducing affordability.
Related terms