US consumers and businesses are now facing a future of more expensive borrowing

The Federal Reserve raised its benchmark rate a quarter point to a range of 3.75% to 4% on Sept. 16, citing still-elevated inflation even as it described broader economic indicators as strong. Consumer prices rose 0.4% in August and 3.4% over the past year, while the 10-year Treasury yield crossed 5% for the first time since 2023.

The hike is expected to hit housing and consumer debt hardest, deepening a ‘lock-in’ effect where homeowners with 3-4% mortgages simply refuse to sell, while barely touching the booming AI investment cycle in data centers and computing infrastructure. Small businesses face higher financing costs tied to those rising long-term yields.

The labor market added 162,000 jobs in August with unemployment steady at 4.1%, though more than a quarter of unemployed Americans have been out of work six months or longer. Fed Chair Kevin Warsh has called the 2% inflation target a ‘firm, fixed target,’ a shift from more ambiguous comments in July.

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