Game of Trades: The Damage Is Irreparable
Interest rates are starting to trickle down. But it may already be too little, too late for the economy. Since 2018, the cost of the average mortgage payment has jumped by nearly $1,000 per month, up 76%. That’s partly due to rising home prices, but largely due to higher interest rate costs.
The same is true in other parts of the economy. The cost to borrow for personal loans has doubled. Money spent on interest isn’t being spent elsewhere.
When interest rates are high, consumers eventually need to think about financing costs. With consumer loan defaults on the rise, it’s possible that consumer spending is hitting a turning point.
Consequently, we could see a further slowdown in consumer spending. That would impact the overall economy, given how much weight consumers carry in the overall economy. That could lead to some market danger in 2025.
The recent rise in unemployment suggests that inflationary dangers have passed. But it may now be rising too quickly for comfort.
In a credit-based economy, keeping interest rates from moving too high is crucial. Many now think the Federal Reserve has acted too little, too late to avoid economic danger. It may be too late for rate cuts to avoid a recession, the so-called “soft-landing,” even as markets have moved as though that’s been the case.
Investors should continue to monitor consumer spending and debt trends to determine the strength of the economy.