Interest rates have jumped to startling levels. Inflation is one reason. Another is the flood of borrowing by the US government. A third factor pushing up rates is a new spate of borrowing by tech firms investing heavily in artificial intelligence.
Then there’s the economy. Many Americans might be surprised, but the US economy is strong. That can also push up rates, because buoyant spending means more demand for products, higher prices, and more inflationary pressure.
“The slowdown feared early this year never arrived,” economist Ed Yardeni of Yardeni Research explained in a recent analysis. “The labor market remains strong.” Among the solid indicators: Consumer spending is up, business investment is robust, job growth is steady, and unemployment is low.
The Atlanta Federal Reserve’s GDPNow tool pegs third-quarter real GDP growth at 5%. That would be more than twice the average growth rate since 2022. That estimate could decline by the time official GDP figures come out at the end of October. But even 3% growth would be stronger than the post-Covid average.
For millions of struggling Americans, President Trump is the loudest source of cognitive dissonance. Trump repeatedly touts “the greatest economy in American history,” a claim he hopes will save his fellow Republicans from a bloodbath in the midterm elections on November 3.
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What most Americans see, however, is gasoline prices driven to $4.50 per gallon by Trump’s Iran war and the energy crisis it caused. Diesel prices, at record highs around $6.50 per gallon, portend months of higher food costs. Overall inflation is persistently high and getting worse, not better. And inflation is growing faster than incomes, which means the typical worker’s paycheck buys less.