So as it turns out, “investment income” is at an all time high, according to this piece in the WSJ. Because the Fed is holding rates at the highest level in a generation, more people with assets are plowing into safe, interest returning assets like money markets, bank accounts, CDs, and the like - and see those kinds of returns continue to power through the price increases that make the less asset heavy populace (and voters) wince.
To add to what the article says, it is the baby boom (bulge) that is in the peak of its “asset years”, mostly people in their 20’s, 30’s, 40’s, and 50’s are still earning, and (generalization) are still building their asset base which cumulates (for those who do) in their late 50’s, 60’s and 70’s and beyond.
The flat lines at the bottom of the chart (as always) explain why some are really feeling the effects of inflation, while those in green are not - and why they keep spending in spite.
Yes it is but that is temporary between now and early 2026.
I think rates will come down roughly 1.5 to 2%. That might be the marginal difference between the high rates now and normalized rates for the current situation with inflation hovering above 2%.
This is a great and valid point, but I think it misses the mark due to the data it is based on. Instead, we should probably be looking at the Median rate, not the average. I was unable to find data supporting the median.
And even this isn’t really stating it entirely accurately. The fact is that government is supplying so much new debt, and CONSTANTLY supplying it without respite, that interest rates have to be higher for “the investing world” to accept all that debt. If the Fed didn’t have several trillion (still over 7 trillion!) on their balance sheet, and all that debt had to come from the worldwide investing cohort, interest rates would be HIGHER now. The Fed is still suppressing interest rates. Just by existing … because everyone knows that if interest rates pop, the Fed will come to the rescue and buy more bonds. Even a tiny little bank issue last February had the Fed instantly bump their balance sheet by $400B!
My statement wasn’t made based on any proper data analysis. I was shooting from the hip, meme style. So don’t put too much emphasis on the word “average” here. I’m using “average” in a generic sense. I probably should have said
The Fed returns rates to historical measures of central tendency for the first time in a generation.
Oh, but you were correct (so I assume you actually knew the data)! The historical average (both times 0% and 20%) is right about where we are now. But, that average could potentially be way off from the norm based on all the years of 0% or from the many years of 8-20%. I don’t know which might influence it more but I would not want to use average in this case because of the “barbell” way rates have been over the past 50 years.
So, I’m a bit bored today and have some free time. Fun fact - The St. Louis Fed has all sorts of interesting statistics available. Among those is the Fed Funds Effective rate for every day from July 1, 1954 through yesterday. Here’s their web page for this data.
So I used that handy download link and got the data in an excel spread sheet. Then I took the average of those 70 years of daily data (less about a month). The average (arithmetic mean) turns out to be 4.61%. Median is 4.25%.
And just since the data are now handy to me, the pre-ZIRP (defined by me to have begun on 1/1/2009) figures are: average 5.62% median 5.21%
