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The economy is coming off a robust summer, fueled by strong consumer spending on travel, concert tours and movie blockbusters. The economy is estimated to have grown at a healthy 3.5% annual rate in the July-September quarter, according to economists at Goldman Sachs. But the substantial rise in borrowing costs could intensify the economy’s slowdown. The yield on the 10-year Treasury touched a 16-year high of 4.8% on Tuesday, up from 3.3% in April. Last week, the average 30-year fixed rate mortgage hit 7.3%, the highest rate in 23 years, according to mortgage buyer Freddie Mac.
Financial analysts point to several reasons for the rapid increase in lending rates. To begin with, the Fed has repeatedly underscored thatfor much longer than financial markets had expected earlier this year. And the economy’s ability to keep growing, even as the Fed has jacked up rates, has lent the impression that it can withstand higher borrowing costs.
“All of that is driving these fears of higher rates, and no one knows when it’s going to stop,” said Gennadiy Goldberg, head of US rates strategy at TD Securities. “What they’re really telling us is, ‘We’re all over it like a cheap suit, but we’re not sure what exactly we’re going to do,’ ” Durham said.