A check-in on the hobby economy

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Kimberly Adams (0:31)

A glimpse into the conversations that led to the last interest rate hike and how much are folks spending these days on their hobbies.

From Marketplace in Washington, I'm Kimberly Adams. We're scheduled to get the minutes from the September Federal Reserve meeting on interest rates later this afternoon. The minutes could give us an idea of the Central Bank's next moves. Marketplace's Nancy Marshall-Ginzer has more on this.

Nancy Marshall Genzer (0:54)

Three weeks ago today, the Federal Reserve decided to raise interest rates by a quarter percentage point. The vote was unanimous. The minutes being released this afternoon will give us a peek at the discussion behind that decision. Economists like Gregory Daco of EY Parthenon will scour the minutes for clues on when Fed policymakers might hike rates again. Daco will look for specific words like many, few, several, or a majority to see not just what Fed policymakers are thinking about doing next, but also how many Fed officials are in agreement on future moves.

Gregory Daco (1:30)

And that gives you better signal as to where policy makers see monitoring policy headed over the coming months, given how large of a group has a similar perspective on inflation dynamics or on employment dynamics.

Nancy Marshall Genzer (1:47)

At this point, Daco is not betting on Fed officials raising the cost of borrowing at the October meeting on interest rates. He puts the odds of that at only 20 percent, but he thinks there's a 50-50 chance of a rate hike at the Fed's last meeting of the year in December. I'm Nancy Marshall-Genser for Marketplace.

Kimberly Adams (2:06)

And those Federal Reserve meeting minutes will be released at 2 p.m. Eastern today. Meanwhile, US mortgage rates are nearing a three-year high, the 30 years waffling between 7.49 and 7.52 percent. For more on this impending record and what it means, I'm joined by Susan Schmidt, Portfolio Manager at Exchange Capital Resources. Good morning, Susan.

Susan Schmidt (2:28)

Good morning.

Kimberly Adams (2:29)

Mortgage rates are at their highest level in almost three years. How did we get here and is there any relief coming?

Susan Schmidt (2:37)

We got here because people are increasingly nervous about the long-term outlook for the economy and therefore, treasury rates are being bid up. So interest rates are increasing, and we see a higher 10-year yield, 30-year yield on those long-term notes than we do normally. That impacts the mortgage market, looking at those same timeframes that mortgages usually are, and as a result, people are just getting more nervous. It costs more to hold the debt, so people have to offer higher interest rates to entice people to buy those underlying debt instruments.

Kimberly Adams (3:11)

And we're seeing that play out this morning. The 10-year treasury is at levels we haven't seen since like 2002, and the treasury is planning to auction off another almost $40 billion of 10-year notes today. What should we be paying attention to there?

Susan Schmidt (3:27)

What we're seeing with the treasury auction today is normal course of business from the treasury's perspective, but for investors, it's showing they're getting a higher interest rate. This then starts competing with other investments in, say, the stock market. If I can get, well, 5.4%, which is about what a 10-year treasury is going for, with no risk at all, then that starts to compete with what I might get in the stock market in terms of a dividend yield.

Kimberly Adams (3:53)

Assuming you believe that there is no risk at all, which is kind of the fundamental issue, right?

Susan Schmidt (3:58)

Right now, the US government still has a pretty good credit rating, and investors are willing to buy US treasury notes. But remember, as our GDP and debt grow at different rates, our debt is growing faster, that causes some concern. Investors start to get nervous, and hence the interest rate that the Treasury has to offer to entice people to buy that debt goes higher.

Kimberly Adams (4:21)

Susan Schmidt is Portfolio Manager at Exchange Capital Resources. Thank you, Susan.

Susan Schmidt (4:25)

Thank you.

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