March 8, 2023
Yesterday, the Fed Chair gave prepared remarks and did Q&A with the Senate Banking Committee. Today, he did the same for the House Financial Services Committee.
Markets are moving on the nuance of what Powell has said about the speed and ultimate stopping point for rate hikes.
Will it be another quarter point higher, than what they’ve already telegraphed? Will they get there faster?
Does it really matter?
They’ve taken the effective Fed Funds rate from roughly zero, to just over 4.5%, inside of one year. And, at this point, they’ve telegraphed a few more hikes, to reach a stopping point above 5%.
Still, after this perceived interest rate shock, the economy is running at 9% annual nominal growth (2.6% real growth, based on the Atlanta Fed’s model). And unemployment is near record lows.
Household net worth is 5% off of record levels, and 24% above pre-covid levels. Debt service, as a percent of disposable income, is at pre-covid levels, which was the lowest on record.
So, why isn’t an expected 5%+ Fed Funds rate choking off economic growth?
Because of this chart …