Minyan Mailbag: Fed Tightenings
Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next column with that very intent.
With all the "degradation" from fixed rate to ARMs + consumer debt burden + home equity borrowing driven consumption, etc., etc. -- What has been the impact of eight consecutive Fed tightenings? Are we seeing signs of the long-awaited consumer meltdown? I'm looking for something beyond the anectdotal, "not yet, but it's just a matter of time...."
It is my pleasure to help:
Higher short term rates have a similar impact on the consumer as higher gas prices, as they chip away from the discretionary dollars. Short-term rates are still fairly low, thus their impact on the consumer so far has been minimal. We have not heard consumer whining, not yet. Also you have to realize that it takes time for the rate hikes to trickle down, as ARMs are reset on an annual basis, and in most cases only move up 1% a year. Though home equity loans (and credit cards) are more responsive to move in short-term rates, the rates are still fairly low.
In my mind, it is a question of if not, when do we start seeing consumers squealing about their debt load? And remember, the market is a discounting mechanism and thus is likely to punish consumer sensitive stocks before consumer squealing gets very loud. (I was about to send it to you, and I asked my co-worker some thoughts on it. Her comment was - "I am starting to squeal").
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