The pain from the Fed's rate hikes is surprisingly elusive
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Higher interest rates were supposed to bring a lot of pain for Americans. So far that hasn't happened.
Why it matters: The Federal Reserve left interest rates unchanged Wednesday, keeping rates higher than originally anticipated, but in his afternoon news conference Fed chair Jay Powell made it clear he's ready to pivot in the event the pain makes an appearance.
The intrigue: When the Fed started hiking rates in 2022, some progressives feared that higher interest rates would eventually drive up unemployment, causing a lot of pain.
- That hasn't happened — the job market is incredibly strong.
- "We thought — and most people thought — there would have to be probably significant dislocations somewhere in the economy, perhaps the labor market, to get inflation all the way down from the very high levels it was at," Powell said. "That didn't happen. That's a tremendous result."
State of play: Rich folks are, to put it technically, crushing it in the high-rate world.
- For middle- and high-earners, especially those who own homes outright or who locked in cheap mortgages, it's a "fairly sunny moment," Jeanna Smialek writes in the New York Times.
- Home values are nearly 50% higher than pre-pandemic levels — and they're still rising, per Case-Shiller.
- The stock market is near record highs and you can actually earn interest on your savings.
The other side: The experience of lower-income Americans is more mixed.
- They're experiencing a great labor market and historically high rates of real wage growth.
- They're also feeling the pain of higher borrowing costs for auto loans and credit card debt while rising mortgage rates are putting home buying out of reach for those trying to get a foot up on the ownership ladder.
- Delinquency rates on credit cards and auto loans are now rising past their pre-pandemic levels. On car loans that increase is most pronounced for those in low-income areas, per data from the NY Fed.
The big picture: There are a lot of competing narratives over how rate hikes affect Americans. Going into 2022, the understanding was that if you keep rates high for long enough, you'd break the job market, as happened in the 1970s.
- Since that hasn't happened, there's been some new attempts at figuring this all out. One possibility is that the Fed hikes haven't had much effect, as Axios' Neil Irwin recently wrote.
What to watch: The jobs report report out Friday will give us an update on the state of the labor market.
The bottom line: There's no doubt that monetary policy has a huge effect on markets and the financial sector of the economy. Its effects on everyday Americans, however, are more tenuous.
