ARTICLE
The Federal Reserve started a cycle of hiking the Fed Funds rate in March of 2022 and many economists have been waiting for a recession ever since. What has everyone been missing? One possible answer is that after more than a decade of financial repression in the wake of the Great Financial Crisis, the US economy’s fundamental sensitivity to interest rates has changed. This new and different sensitivity is both a product of, and a cause of, increased bifurcation across the economy. The most obvious bifurcation is with the consumer. For the top 20% of the income distribution, higher interest rates have arguably been a net positive. It is an unfortunate fact that the top 10% of households in the US own 50% of the assets, meanwhile the bottom 50% of households own just 6% of the assets. Those upper income households have enjoyed a stock market rally, they are able to put their savings into a money market account earning over 5%, and they are more likely to be homeowners sitting on fixed rate mortgages. Things have been pretty good for these folks, so it is no surprise that they continue to spend money and the top 20% of households account for nearly 40% of spending in the US. Click here to read more from ECA member firm Northwestern Mutual.
The Federal Reserve started a cycle of hiking the Fed Funds rate in March of 2022 and many economists have been waiting for a recession ever since. What has everyone been missing? One possible answer is that after more than a decade of financial repression in the wake of the Great Financial Crisis, the US economy’s fundamental sensitivity to interest rates has changed. This new and different sensitivity is both a product of, and a cause of, increased bifurcation across the economy.
The most obvious bifurcation is with the consumer. For the top 20% of the income distribution, higher interest rates have arguably been a net positive. It is an unfortunate fact that the top 10% of households in the US own 50% of the assets, meanwhile the bottom 50% of households own just 6% of the assets. Those upper income households have enjoyed a stock market rally, they are able to put their savings into a money market account earning over 5%, and they are more likely to be homeowners sitting on fixed rate mortgages. Things have been pretty good for these folks, so it is no surprise that they continue to spend money and the top 20% of households account for nearly 40% of spending in the US.
Click here to read more from ECA member firm Northwestern Mutual.