Fear Of Inflation Spikes Long-Term Interest Rates In the past week, interest rates shot up on home mortgages and 10-year Treasury notes as investors looked for signs of inflation on the horizon. But is it too early to worry?
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Fear Of Inflation Spikes Long-Term Interest Rates

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Fear Of Inflation Spikes Long-Term Interest Rates

Fear Of Inflation Spikes Long-Term Interest Rates

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LIANE HANSEN, host:

This past week, interest rates shot up on home mortgages and 10-year Treasury notes. Joining us to discuss what this means is NPR's senior business editor Marilyn Geewax. Welcome back, Marilyn.

MARILYN GEEWAX: Good morning.

HANSEN: Marilyn, the economy is still in the tank and inflation is low. Why are interest rates going up?

GEEWAX: Not all rates are rising. So far this has been a run-up in long-term interest rates. Short-term rates, like those we see on our credit cards, they haven't budged much. And the rates on three-year auto loans have stayed pretty steady. But a lot of investors think that inflation is going to shoot up over time because of all this government borrowing. So they say, okay, I'll loan you money for a long time, but you have to pay me a lot of interest in exchange. So, long-term rates, like those we see on mortgages, those are heading up.

HANSEN: So is this the time to buy a house?

GEEWAX: Realtors certainly argue that this is a terrific time to buy a house. Interest rates are still low by historic standards. It's in the ballpark of five percent. So if you want to get a low price on a house, you can lock in at a rate that's still relatively low, and you can protect yourself from inflation if real estate prices start to rise again.

But remember, none of this is simple or certain. For example, if interest rates were to shoot up a lot more, that could depress the housing market. And over time, a depressed housing market, you might see lower prices. And so if you wait a few months, you might be able to get a house for less.

HANSEN: What about buying a car? Will the rates eventually go up on those loans?

GEEWAX: So far we haven't seen a whole lot of change on consumer loans. It seems like those are holding pretty steady. And we've had so much turmoil in the auto industry that the prices on cars are pretty low. So this, again, it might be a good time to buy a car because the prices are low and the interest rates really haven't gone up on those.

HANSEN: Are there concerns about inflation?

GEEWAX: Some economists aren't worried about inflation at all, but others are worried a lot. They think the Federal Reserve's been flooding the banking system with too much money, and the government is borrowing too much. Eventually, those kinds of policies could unleash a lot of inflation and maybe even double-digit hyperinflation.

HANSEN: So if inflation is coming back, what should people do?

GEEWAX: The economists who do fear inflation call it a silent thief. It's something that comes and steal your purchasing power when you're not looking. So one way to keep pace with inflation is if you buy assets that can appreciate in value over time. Some people like to buy gold because it tends to hold its value over time.

And traditionally, real estate, just plain old land, is a good way to fight inflation. So if you've had your eye on a beautiful piece of farmland for a long time, maybe this is the time to buy it and let it rise in value over time.

HANSEN: NPR's senior business editor Marilyn Geewax. Thanks a lot, Marilyn.

GEEWAX: You're welcome, Liane.

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