Do Interest Rates Matter Anymore?

 The Federal Reserve hiked interest rates 11 times between March 2022 and January 2024. Short rates have gone from zero to 5.5%. 

Meanwhile, the economy is growing at close to 3%. Unemployment hasn’t surged. Commodities are booming. Stocks hit an all-time high at the end of March. 

Thirty-year mortgage rates are more than 7%, up from roughly 3% at the start of 2022, so surely home prices are down, right? 

Wrong. The median home price was $384,500 in March, up from $350,000 at the start of 2022. Supply is limited because those with 3% mortgages are staying put with low payments.

We are now an economy of logistics, online sales and electronic delivery. Manufacturing economies such as China and much of Europe are much more interest-rate-sensitive than the U.S. 

Higher interest rates may matter, but for an increasingly smaller portion of our economy.

There is an area in which interest rates really do matter: federal budget deficits

Andy Kessler Wall Street Journal 21 April 2024

We really don’t have a strong grasp on why prices go up and down


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