Business

Evan Horowitz | Quick Study

Gas and mortgages are getting expensive again. Welcome to a normal economy

Gasoline prices were seen at a gas station near downtown Los Angeles.
Richard Vogel/Associated Press
Gasoline prices were seen at a gas station near downtown Los Angeles.

Slowly but surely, the US economy seems to be finding its way back to an old, forgotten normal, with gas prices approaching $3 a gallon and mortgage rates climbing toward 5 percent. Depending on your place on the economic landscape, it’s either a long-overdue return to economic sanity or an unnecessary risk to a steady recovery.

Let’s start with the rise in gasoline prices, because that’s the flukiest part in all this, the bit that America’s economic stewards might undo if it weren’t the result of broader geopolitical forces (like the political crisis in Venezuela and Saudi Arabia’s desire to boost the value of its state oil company before offering shares to investors).

Even here, there are winners and losers.

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Higher oil and gas prices are doubtless bad news for drivers idling in traffic or preparing for long summer road trips, particularly lower-income consumers, who are expected to lose at the pump even while getting some help from the recently passed Republican tax cuts.

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Yet, thanks to the fracking revolution, the United States is now one of the world’s biggest producers of oil. Which means rising gasoline prices are a potential boon for the thousands of workers who lost their jobs when the oil markets collapsed in 2015. Not to mention the urgent environmental argument, namely that higher oil prices give families and businesses a new incentive to switch to more fuel-efficient cars and cleaner-energy facilities.

Whether these gains outweigh the extra hit to family budgets is largely beside the point, since there’s not much we can do about it anyway. In this case, US consumers are forced to follow an unplanned detour back to the old normal of higher gas prices.

By contrast, most of the other backward-moving trends are deliberate, centrally orchestrated by Federal Reserve members intent on curbing economic growth by making 2018 look more like the world of 2000-2006, complete with higher mortgage rates and bond yields, better deals on CDs, and worse ones on home equity loans.

With unemployment low and gross domestic product growth steady, there’s no need to maintain the kind of rock-bottom interest rates that helped us escape the legacy of the Great Recession.

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Quite the contrary. Right now, the Fed’s fears have flipped. Rather than worry about an underperforming economy, policy makers are concerned about overheating and the risk that worker shortages could drive up inflation. By actively raising interest rates, they can help prevent that, making it more expensive for people to borrow and spend.

If that sounds abstract, it actually hits families in some very concrete ways, including by trickling through into rising mortgage rates.

Over the past 18 months, the average rate on 30-year fixed mortgages has climbed a full percentage point, which translates into an additional $100,000 in interest over the life of a $500,000 loan. That’s a sizable loss for families who missed the ultra-low rates. And it’s not just about mortgages; new borrowers will also have to pay more for automobile financing and credit card debt.

Businesses run on debt, too, whether it’s bank loans or corporate bonds. As interest rates go up, it will get harder for them to tap those channels, which hurts investment but helps the Fed achieve its goal.

There is another side to these rising rates. The same changes that hurt borrowers can help savers looking for low-risk investment options. For instance, the annual yield on 10-year Treasury notes has climbed from 1.4 percent to 3.1 percent since the summer of 2016.

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And it’s worth pausing for perspective, too. Taking the long view, borrowing rates really haven’t gone up that much. The average 30-year mortgage is still just 4.6 percent, well below the 6.6 percent rate of summer 2006 or the 8.6 percent rate of May 2000.

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But if the journey is only beginning, the destination nonetheless seems clear. With the Federal Reserve promising further interest rate hikes this year and next, the new economic normal is likely to look more and more like the old one — with interest rates that are increasingly good for savers, but tough for borrowers and new home-buyers.

As for the future of gas prices, you’ll have to ask Saudi Arabia.

Evan Horowitz digs through data to find information that illuminates the policy issues facing Massachusetts and the nation. He can be reached at evan.horowitz@globe.com. Follow him on Twitter @GlobeHorowitz.