Higher interest rates are a fact of life. Regardless of what happens with quantitative easing we will not see the 1.5% rates that we saw in May on the benchmark ten-year Treasury.
And is hardly just an inconvenience either. Interest rates affect the bottom line of every corporation every household and even our government. The cost of money has just gotten a lot more expensive than last few months. Although interest rates of moderated over the last week or so, over long-term that's likely just a temporary occurrence.
Citigroup, Bank of America, and Wells Fargo have each announced layoffs because of higher interest rates.
From The Star Telegram:
Citigroup, the fifth-biggest U.S. mortgage originator last year, is cutting about 1,000 jobs in its home-lending business, including about 100 in Irving.
Most workers affected by the layoffs “will be reassigned to other work at the site,” said Mark Rodgers, a Citigroup spokesman. “While difficult, these actions reflect our ongoing efforts to increase operational efficiency, adapt to changes in the marketplace and position the business for the future.”
Each of these companies has helped lead the rally in stocks since last year. And the fact that they're laying off mortgage staff is worrisome for housing in general. Not coincidentally housing also helped lead the market higher.
Mortgages? Housing? Mortgages? Housing?
See the connection?
Look at the flatline for Bank of America since about the middle of July.
Now compare the chart with the PIMCO 7-15 Year Treasury ETF.
The stock market was way out in front of this move and interest rates. And quantitative easing is not gonna be able to do much about it. It's not about the supply of money, It's about the supply of creditworthy borrowers.
It looks like we out.
At least until some jobs are created.
Certainly banks and the mortgage business will be the first to be hit by higher interest rates. But they won't be the last.