US borrowing costs hit fresh highs over inflation fears

On Tuesday, US borrowing costs hit a fresh high as renewed strikes in the Middle East pushed oil prices above $92 a barrel, heightening inflation concerns. The effective interest rate on 10-year borrowing rose to 4.79%, its highest level since January 2025. This movement in global bond markets affects US government borrowing costs and also influences rates for mortgages, car loans, and credit cards. The spike comes amid fears over the pace of price rises in the US, leading to increased speculation that the Federal Reserve will raise interest rates later this month. Fed Governor Michael Barr said inflation had been too high for five years and warned of acting decisively if it did not cool. Fed Chairman Kevin Warsh had previously said policymakers would 'have work to do' if cost-of-living pressures were not easing. Latest figures show prices rose 3.4% in the year to July, above the Fed's 2% target, while interest rates have been left unchanged between 3.5% and 3.75% for months. Investors are monitoring comments, and expectations of a rate hike have grown. Bond investors typically demand higher yields if inflation is high or expected to be elevated, and these rates set the path for borrowing costs globally. Besides inflation, investors also have concerns about government borrowing and Big Tech spending, with uncertainty over AI returns. US national debt has passed $40 trillion, doubling in a decade. After 30-year borrowing costs hit levels not seen since 2007, Treasury Secretary Scott Bessent said the government would buy back more debt to lower rates, but the market reaction was short-lived. US 30-year mortgage rates have risen to a one-year high of almost 6.7%. Rising rates can dampen economic growth if consumers cut back and businesses halt investment.