US borrowing costs have hit a fresh high, with the effective interest rate on 10-year borrowing reaching 4.79% on Tuesday. This marks the highest level since January 2025 and follows a surge in oil prices above $92 a barrel, driven by renewed strikes in the Middle East.
These movements in global bond markets not only impact the US government's borrowing rates but also influence rates for mortgages, car loans, and credit cards for individuals. The rise in borrowing costs comes amidst growing speculation that the Federal Reserve may increase interest rates later this month.
Michael Barr, a governor at the US central bank, stated on Tuesday that inflation has been too high for five years and warned of decisive action to raise rates if it does not cool. This follows comments last week from Fed Chairman Kevin Warsh, who indicated policymakers would "have work to do" if cost-of-living pressures were not easing for Americans. Latest figures show US prices rose 3.4% in the year to July, exceeding the Fed's 2% target, despite interest rates remaining unchanged for months between 3.5% and 3.75%.
Beyond inflation, investors are also concerned about global government borrowing levels and spending by Big Tech firms, particularly regarding the return on investment for artificial intelligence. The US national debt has surpassed $40tn, doubling in a decade.