So, the net of interest income minus interest expense is roughly unchanged since the Fed began hiking rates, at $1.37 trillion annual rate – meaning that consumers earned $1.37 trillion annual rate more in Q1 in interest income than they made in interest payments. Both of them went up by the same dollar amount ($152 billion annual rate) since the start of the rate hikes. So here on the same chart are interest income (red) and interest payments (green), for a sense of relative proportion. Then there is a smaller portion of the population that is up to their ears in debt. Many of them are renters of choice,” as they’re called, that live in higher-end houses, rented condos, and higher-end apartment buildings, and many of them have plenty of assets and no debt. Over one-third of households are renters. Roughly one-third of households own their home free and clear and have no interest payments associated with their home. That plunge started reversing in 2022 and has how shot above the multi-year trend line:īut interest income is always much higher than interest payments. We note once again with our pandemic-special forever-bedazzled grin how the pandemic-era’s mortgage forbearance, still ongoing student-loan forbearance, and the free money that people used to pay down their credit cards have created a historic plunge in interest payments. Personal interest payments also jumped by $152 billion seasonally adjusted annual rate since the Fed started hiking interest rates, and by Q1 reached a seasonally adjusted annual rate of $435 billion. But in terms of the overall economy, it doesn’t matter how it splits up since we’re looking at overall income, overall interest payments, overall demand, and overall inflation. So we’re talking about two different groups of people here, and those two groups overlap to some extent. And many of these people don’t have significant interest-bearing assets or else they would have paid off their most expensive debts first, such as their credit cards. ![]() There are other people who now borrow to finance a home and/or a car, and some also owe some interest-bearing amount on their credit cards, HELOCs, personal loans, etc. Many of these people also have assets that now produce interest income. Those 3% mortgages are still out there in massive numbers. People who earn interest income overlap partially with the people who make interest payments.įor example, many people financed or refinanced their home back when mortgage rates were around 3% even if they could pay cash for it. ![]() Two different groups of people, with some overlap. And you can see the increase in interest income from Q1 2017 to Q2 2019, during the Fed’s prior rate-hike cycle. You can see the stagnating interest income from Q3 2019 through Q4 2021, when the Fed repressed short-term rates to eventually 0%. Interest income earned by consumers from their assets jumped by a seasonally adjusted annual rate of $152 billion since the Fed started hiking interest rates, and by Q1 reached a seasonally adjusted annual rate of $1.81 trillion, according to data from the Bureau of Economic Analysis: Turns out, they barely have – which could be one of the reasons consumer spending has remained surprisingly strong, and why core inflation is so sticky. We want to see to what extent higher interest rates on net (interest income minus interest payments) have cut into overall consumer income. Those rates are now producing a significant increase in cash flow to those households – and many are spending this extra cash, especially retirees that have gotten bludgeoned by the Fed’s interest-rate repression over the prior 15 years.īut interest payments that consumers are making on their mortgages and consumer loans are going up. Interest income to households is surging, fueled by 5% money-market funds, 5.2% CDs and Treasury bills, 4.5% savings accounts, and other fixed-income products that people have invested many trillions of dollars in. Interest income is a big number that got a lot bigger, and people are spending some of it.
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