The rising cost of Treasury yields threatens growth

Rising 10-year Treasury yields are putting upward pressure on borrowing costs and could weigh on economic growth. If yields rise to 5.5% or 6%, the result could be slower growth, higher unemployment and persistent inflation, RSM’s economic modeling shows.

For example, with the 10-year Treasury yield likely to move decisively above 5% in the near term, inflation and unemployment will come under pressure, weighing on growth prospects for the economy. Achieving the Federal Reserve’s 2% inflation target most likely would require more tightening than markets and the Fed expect.

Also in this issue, RSM examines how artificial intelligence is changing consumer shopping behavior and what retailers can do to navigate agentic commerce. The issue also explores what is behind slowing deal activity in the consumer products sector.

What the yield does to inflation depends on why it is rising: If the market is pricing in inflation, it gets inflation. That is how inflation expectations work, and the Fed will need to lift rates higher than its current forecast to bring inflation back toward its target.

Joe Brusuelas, Chief Economist, RSM US

Finally, in the Market Minute series, RSM decodes how renewed hostilities in the Middle East are roiling global energy markets and why global rates are on the rise, pushing borrowing costs higher across developed economies.

Read our global team’s analysis of these topics in the latest edition of The Real Economy.