The interest rate on 10-year US Treasury bonds almost doub­led in six months, rising from 2.26 per cent last December to 3.98 per cent in mid-June, before de­creasing slightly in recent days. This sharp rise happened despite the Federal Reserve’s quantitative easing policy aimed at lowering long-term rates by buying $300bn (€21bn, £18bn) of Treasuries and promising to buy more than $1,000bn of mortgage securities.

The higher Treasury bond interest rates have pulled up mortgage rates, especially since April. That has weakened aggregate demand by depressing home-buying and reducing house prices. The fall in house prices in the past six months cut household wealth by some $1,500bn, leading to lower consumer spending. The lower home prices also caused more defaults and weakened bank balance sheets.