Economist Mohamed El-Erian has sounded the alarm on the current state of the US economy, warning that the high interest rates on U.S. bonds are a harbinger of an even greater affordability crisis.

In his latest opinion piece for The New York Times, El-Erian argued that the current bond market sell-off is not just a normal market fluctuation, but rather a sign of a structural economic shift that could have far-reaching consequences.

The 30-year Treasury yield has reached 5.27%, a level last seen in 2007, while the 10-year and five-year bonds are also climbing, currently at 4.736% and 4.426%, respectively. This translates to massive amounts of money being spent on interest payments, with the Congressional Budget Office estimating that net interest on public debt for fiscal year 2026 will reach $963 billion.

According to El-Erian, this means that more federal revenue will go towards servicing the debt, leaving less available for other essential services such as defense and healthcare. This could have significant implications for the US economy, particularly for low-income households who are already struggling to make ends meet.

El-Erian points to the intense borrowing from hyperscalers building their AI data centers as a major contributor to the current bond market chaos. These companies have already sold almost $500 billion in bonds this year and will likely borrow another $300 billion by year’s end. This has created a significant demand for capital, which is driving up interest rates and making it more expensive for consumers to borrow money.

The current bond market environment is also being driven by the unique causes of the real yield surge, which is the extra, inflation-adjusted compensation that investors demand to bear the risk of buying debt in a more volatile world. Unlike previous bond yield spikes, this is not being driven by runaway inflation, but rather by the increased risk associated with investing in bonds.

El-Erian believes that this structural shift will make America more expensive, with higher interest rates and inflation eroding the purchasing power of consumers. He warns that policymakers will struggle to find a quick fix to this issue, and that it will require careful management to mitigate its effects.

The current bond market chaos has already triggered a lot of crazy moves throughout global markets, including a decline in the US dollar’s strength and a surge in assets traditionally seen as inflation hedges, such as gold and Bitcoin. However, El-Erian warns that the real impact of this shift will be felt by low-income households, who will struggle to afford the increased cost of living.

As the US economy continues to grapple with the effects of high interest rates and inflation, it is clear that Mohamed El-Erian’s warnings are not to be taken lightly. The current structural shift in the US economy has far-reaching implications for consumers, policymakers, and the global economy as a whole.

It is essential to monitor the situation closely and be prepared for the potential consequences of this shift. By understanding the underlying causes of this issue, we can better prepare ourselves for the challenges that lie ahead.