Demand for riskier mortgages rises again, along with interest rates

Demand for riskier mortgages rises again, along with interest rates. Mortgage rates continue to climb, so more borrowers are turning to adjustable rate mortgages, which offer lower interest rates comparatively.

What happened

Newly-appointed Fed Chair Kevin Warsh has remained tight-lipped on where he sees interest rates going, but his repeated comments that the central bank's focus should be on slowing price rises has further fuelled expectations of an increase. Central banks try to limit price rises with higher interest rates. History suggests the bull market in stocks will continue if the Fed raises interest rates this week, but there are things investors can do to take some precaution if hikes continue.

Citing the Middle East conflict and warning inflation was "set to remain well above" its 2% target for some time, the European Central Bank raised interest rates this week to 2. Interest rates are already higher than four years ago, she added, and consumers, somewhat scarred by previous price hikes, have changed how they spend. Graphic by Miguel Roca-Terry and Jess CarrRelated topicsMonetary Policy Committee (MPC)European Central Bank (ECB)InflationBank of EnglandUS Federal ReserveMore on this storyFed has 'work to do' if price rises don't ease for Americans, Warsh says Published28 AugustOil, gas and borrowing costs surge as fears over Middle East escalatePublished3 days agoBorrowers expecting mortgage rates to drop have hopes dashedPublished5 days ago

AI and data-center growth are supporting demand for natural gas and power generation.

The wider picture

Baker Hughes sees an “energy demand decade,” with natural gas playing a central role. Jeenah Moon | ReutersBaker Hughes has yet to see higher borrowing costs slow investment in major energy projects, with its chief executive pointing to robust demand for natural gas and power from the global buildout of artificial intelligence infrastructure. "We haven't seen a slowdown, and the bankability is really based on the offtake agreements that are in place, as well as the outlook of energy demand," Chairman and CEO Lorenzo Simonelli told CNBC at the Gastech conference in Bangkok.

"Energy demand is not necessarily going to slow down with the increasing population, with the increasing linkage between industrial outcomes of data centers and AI, it's intrinsically linked with energy supply and energy sources," he said. The company estimates that installed LNG capacity will need to reach 900 million tons per annum by 2035 to meet future demand. AI is emerging as an increasingly important source of that demand. "We think there won't be a slowdown," he said, adding that Baker Hughes is increasing capacity to meet demand.

Baker Hughes has just over $37 billion in backlog, including demand tied to gas infrastructure, data-center power generation and LNG, he said.

What has been reported

"We're in an energy demand decade, and gas is central to it. Other central banks are also responding, with the US and the UK poised to make interest-rate decisions next week. Up first on Wednesday is the US Federal Reserve, which has held rates steady between 3. Views differ somewhat, with Grace Zwemmer, US economist at Oxford Economics, expecting rates to remain unchanged, but almost universally a rate cut appears to be off the table. Trump, though, is again pressing for lower rates.

Along with directly driving up costs for homes and businesses, higher energy prices can also make transporting goods more expensive and those extra costs can be passed down to consumers through steeper prices for the likes of food and other staples. By pushing up the cost of borrowing for things such as mortgages and credit cards, they seek to slow consumer spending and inflation. Higher rates also can give people incentives to save instead of spend.

What happens next

But it's a balancing act, as higher rates can also encourage businesses to hold off on investing and hiring. But despite those predictions, there appears to be broad agreement that the Bank will leave rates at 3. That's because there is "no sign" of the so-called second-round effects of the price shock feeding through the economy, such as workers requesting wage rises or businesses hiking prices, according to Oxford Economics. "The conditions were in place for employees to push for significant pay rises in response to a significant inflation shock," he said.

"Now, hiring is much weaker than average and there is less pressure to recruit – giving employees less leverage to demand higher pay. Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenuKey PointsBaker Hughes has yet to see higher borrowing costs slow investment in energy projects. In this articleBKRFollow your favorite stocksCREATE FREE ACCOUNTLorenzo Simonelli, CEO of Baker Hughes, speaks during an interview with CNBC on the floor at the New York Stock Exchange (NYSE) in New York City, U.

The report has been compiled by The Daily Waves using information reported across marketwatch.com, cnbc.com, bbc.co.uk. Details are presented according to the information available at the time of publication and may change as authorities, organisers or other relevant parties provide updates.