The Obama administration and the Federal Reserve have been using every policy tool available to push down short-term interest rates to get the economy moving.
Those efforts have been successful, so interest rates on credit cards and three-year auto loans have been holding steady. But in the past week, interest rates shot up on home mortgages and 10-year Treasury notes.
There's not much policymakers can do to control the rates on long-term securities.
At the start of the year, the benchmark 10-year Treasury yield was just a bit over 2 percent. Last week, it surged to 3.7 percent on Wednesday before retreating a bit. And mortgage rates have run back up to the highest levels since early February. Bankrate.com said its weekly national survey of large lenders, conducted May 28, showed the average 30-year, fixed-rate mortgage leapt 21 basis points to 5.45 percent.
These long-term rates reflect what investors see far out on the horizon. If they think inflation is going to be higher years from now, they want higher interest rates.
This concern about inflation is controversial. Nariman Behravesh, the chief economist for the forecasting firm IHS Global Insight, said "inflation is a non-issue" for the foreseeable future. In a recession as bad as this one, wage and price pressures will take a very long time to build up, he said.
"It's hard for me to get excited about inflation," he said.
But many other economists do fear inflation. They say the Federal Reserve has been flooding the banking system with more money and the government is borrowing too much — policies that will eventually unleash inflation.
Milton Ezrati, senior economist for Lord Abbett, a mutual fund company, said in a recent written analysis that inflation is "lurking in the future shadows" of economic recovery.