US borrowing costs hit fresh highs over inflation fears

US borrowing costs hit a fresh high on Tuesday as renewed strikes in the Middle East pushed up oil prices and heightened concerns over inflation.

The effective interest rate on borrowing over 10 years rose to 4.79%, its highest level since January 2025, as oil prices surged above $92 a barrel.

Such movements on global bond markets affect rates at which the US government can borrow money at, but also influence rates people pay for mortgages, car loans and credit cards.

The spike in borrowing costs comes and fears over the pace of price rises in the US has led to increased speculation that the Federal Reserve will increase interest rates later this month.

Michael Barr, a governor at the US central bank, said in a speech on Tuesday that inflation had been too high for five years and warned if it did not cool "then I think we should act decisively to raise rates".

His comments came after Kevin Warsh, chairman of the Fed, said last week that policymakers would "have work to do" if they were not confident cost-of-living pressures were easing for Americans.

Latest figures show prices rose 3.4% in the year to July, above the Fed's 2% target, however, interest rates have been left unchanged for months between 3.5% and 3.75%.

Warsh has remained tight-lipped about the potential path of interest rates, but investors have been monitoring comments in recent days and expectations of a rate hike this month have grown.