The Price of Money

Understanding interest rates and what they mean for your investments.

An interest rate is simply the price of money. When it rises, everything bought with borrowed money costs more, and everything that pays you interest becomes more generous. Both sides of that coin are showing up right now.

Why rates went up

On September 16, the Federal Reserve raised its benchmark rate by 0.25% to 3.75%-4.00%, its first increase since 2023. The reason is simple: inflation is still above the Fed's 2% target, and you can feel it at the gas pump and the grocery store. Headline inflation was 3.4% in August.

The main culprit is oil. Since the conflict with Iran escalated in February, disruption around the Strait of Hormuz, a route for roughly a fifth of the world's oil and gas, has pushed crude above $100 a barrel at times. Strip out food and energy and “core” inflation was only 2.4%. That one-point gap is, largely, the oil bill.

US consumer prices, year over year, August 2026. Source: BLS via Trading Economics.

Tariffs and heavy spending on AI infrastructure add some pressure too, and the Fed's own projections do not see inflation back at 2% until 2029, with most policymakers expecting at least one more increase this year.

Why raise rates at all, when higher rates cannot pump more oil? Because the Fed's job is to stop a temporary price shock from becoming a permanent habit. When borrowing costs more, families and businesses spend and expand a little less, and prices cool. The medicine is slow, often taking a year or more to work its way through the economy, and it touches nearly everything that runs on credit.

Mortgages: the first casualty

Mortgage rates follow longer-term Treasury yields, and the 10-year Treasury crossed 5% in September for the first time since 2023. The average 30-year fixed mortgage reached 7.28% on October 1, up from 6.34% a year earlier, and some lender surveys show it closer to 7.5%. That is the highest level in about three years.

Monthly principal and interest on a $500,000, 30-year fixed loan, excluding taxes and insurance. That is about $15,800 more a year for the identical home.

Perspective: today's rates are normal

Here is the part most headlines skip. Since Freddie Mac began tracking in 1971, the 30-year rate has averaged roughly 7.7%. Today sits near the long-run middle. The outlier was 2020-2021, when emergency pandemic policy and trillions in Fed bond buying pushed mortgages to a record low near 2.65%. That was a lifeboat, not a new normal. Barring a severe crisis that calls for the same emergency medicine, we would not plan around sub-3% mortgages returning.

30-year fixed mortgage rate, annual averages (selected years, approximate), plus the October 1, 2026 weekly reading. Source: Freddie Mac PMMS history.

Housing: frozen, not falling

High rates usually cool home prices. This time the bigger effect is on activity. More than half of mortgaged homeowners hold a rate below 4%. Selling means trading a 3% loan for a 7% one, so many simply stay put. Fewer sellers, fewer buyers who can afford the payment: a market where both sides hold still.

The numbers agree. Existing-home sales slowed to 3.98 million a year in August, yet the median price still rose 1.6%. Some pockets are softening: builders are cutting prices, and the median new-home price is down almost 6% from a year ago. And homes for sale have finally recovered to 1.62 million, about 4.9 months of supply, the most since 2019. The shortage story is fading. The affordability story is not.

Stocks: inflation they can live with

Stocks are ownership in real businesses, and businesses can raise their prices. Moderate, predictable inflation tends to flow through into revenue and earnings, which is why stocks have historically been one of the better long-term defenses of purchasing power. What markets dislike is surprise: inflation that jumps unexpectedly and forces rates sharply higher. Expect choppy days around Fed meetings and inflation reports. That is the price of admission, not a reason to leave the theater.

Higher rates do raise the bar for stocks, since safer assets now compete for the same dollars. That argues for owning profitable, durable businesses rather than chasing stories. It does not argue for sitting on the sidelines.

Bonds: finally getting paid

Rising rates hurt bonds already owned, because older, lower-paying bonds lose value. The flip side is that new money now earns real income. With the 10-year Treasury near 5% and inflation around 3.4%, investors are paid above inflation, something largely missing for most of the past decade. For near-term goals, cash reserves, and as a shock absorber when stocks fall, high-quality bonds are doing their job again. And if rates ease later, today's buyers keep their yields and may see price gains on top.

What this means for you

Higher rates are the economy's brakes, applied to slow things just enough to cool inflation. For a diversified portfolio that is usually a manageable season: stocks should hold up over time, and bonds bought today finally pay for their risk. Homes may adjust slowest, but that matters mainly if you own investment property or plan to move soon. Your primary home is first a place to live, raise a family, and enjoy. Its value on any given Tuesday does not change that.

Questions about your portfolio or your financial plan? We are always glad to talk.

Wealthy & Wise Family Office | Genti Cici, CFP, CAIA – Senior Family Office Advisor

info@investedadvisory.com  ·  410-469-9532  ·  wealthyandwisefamilyoffice.com

For general information only. Not a recommendation to buy or sell any security. Data as of October 7, 2026; figures may change.