▪  BY JACOB RADKE

The highest in 19 years

The Federal Reserve has cut 1.75% across six meetings since September 2024, but long rates have gone the other way. On Monday the 30-year Treasury closed at 5.31%, the highest since June 2007.

The economy is the reason. Spending by American households and businesses grew at a 3.9% annual rate last quarter, more than double the 1.7% rate in the first three months of the year. The AI buildout is part of that, with data centers, servers and networking gear now accounting for about 0.8% of the entire U.S. economy.

Corporate profits followed. Second quarter earnings for the S&P 500 came in 50% above last year.

Inflation came with the growth. PCE inflation came in at a 5.1% annual rate last quarter, up from 4.6% in the first quarter. And the Fed changed hands, with Kevin Warsh signaling higher, or at least not lower, rates in June followed by three Fed officials dissenting in favor of a hike in July.

This is what a normal rate environment looks like. A 30-year should pay more than a 10-year, and a 10-year should pay more than a three-month bill, because money committed for thirty years is locked up for thirty years and a lot can happen in that time.

And while the Fed controls short-term rates, long-term rates are set by the market and influenced by growth, inflation, and risk conditions.

Right now all three are pointing in the same direction, toward higher rates and more expensive borrowing.