Ex-Treasury Secretary Says ‘We’re in New Financial Territory’

Lawrence Summers, former U.S. Treasury Secretary, speaks during an event at the London School of Economics, in London, England, on Mar. 25, 2013. (Jason Alden - WPA Pool/Getty Images)

Lawrence Summers, the former Secretary of Treasury under the Clinton administration, has warned that home mortgage rates are set to climb even higher.

“The U.S. 10-year rate just crossed above 4 percent. Mortgage rates comfortably exceed 7 percent. We are now in new financial territory,” Summers noted in a tweet on Sept. 28. The average contract rate on a 30-year fixed-rate mortgage rose by 27 basis points, to 6.52 percent for the week ended Sept. 23, according to the Mortgage Bankers Association (MBA).

This is the mortgage’s highest interest rate since mid-2008. The rise of mortgage rates had briefly paused in August, but since have climbed by more than a percentage point in the past six weeks.

“With rates now more than double what they were a year ago, the pace of refinancing is running at a 22-year low, and last week was more than 80 percent below last year’s level,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, stated in a press release on Sept 28.

“Similarly, purchase activity was 29 percent lower than a year ago, with higher rates and economic uncertainty weighing on buyers’ decisions.”

Mortgage applications for both purchase and refinances have declined following the Federal Reserve’s “aggressive policy measures” aimed at bringing down inflation, Kan added.

Since February, the Fed has raised its benchmark rate from 0.8 percent to a range of 3.0–3.25 percent, as of September. Mortgage originations are now at $677.96 billion, down from $689 billion in the last quarter and $1.168 trillion a year back, according to MBA data.

US Yields, Fed Rates

On Wednesday, the benchmark 10-year U.S. Treasury yield climbed to 4 percent—its highest level in 14 years—before declining after the Bank of England announced emergency measures to buy longer-term debt issued by the UK government.

The 10-year U.S. Treasury yield was trading at 3.777 percent as of 12:00 EDT, Sept. 28. On Jan. 20, 2021, when Joe Biden assumed the presidency, the rate was only 1.077 percent.

Under the Biden administration, the 10-year Treasury yield has thus risen two and a half times. During the same period, 12-month inflation rose from 1.4 percent to 8.3 percent, jumping by almost five times.

Treasury yields have been rising since several Fed officials suggested that the central bank will keep raising interest rates until inflation is brought under control.

However, there are disagreements with the Federal Reserve as some have expressed concerns that the central bank might be moving too fast in its fight against inflation.

In an interview with CNBC, Charles Evans, president of the Federal Reserve Bank of Chicago, said that he was a “little nervous” about the Fed not waiting long enough to assess how its interest-rate hikes ire affecting the economy.

“There are lags in monetary policy, and we have moved expeditiously. We have done three 75 basis-point increases in a row, and [while] there is talk of more to get that rate to 4.25 percent to 4.5 percent by the end of the year, you’re not leaving much time to sort of look at each monthly release,” he said.