With the end of 3Q2023,  I thought this a good time to review our Fed Rate Increase Impact Map, where we made some assumptions for the timing of ‘long and variable lags’ inherent in Fed policy implementation.  The charts here abouts lay out our assumptions and a quarterly mapping of those assumptions.  You can review past updates here and here.

Some observations

• As of 09.30.2023, a cumulative 43.3% of the total 5.25% of Fed rate increases has impacted the real economy.
• Over 3Q2023 thru 1Q2024, 48.6% of that 5.25% did or will hit the real economy. Thru 4Q2023 & 1Q2024, we will see 31.7% of that total hit, for a cumulative 75.0% of the total hitting by then.
• The current quarter, 4Q2023, will see the greatest impact from the increases as 18.6% of the total increases impacts the economy.

Evidence of the impact of increases the real economy are growing weekly. Mortgage rates approaching 8% have cooled home buying and refinancing. Credit card rates have moved higher (yes, it is possible!) as have both balances and delinquencies. The rising costs of everyday living needs is curtailing discretionary spending at most levels of society, bar the rich. As consumers turn more cautious about the future, their marginal utility for money will increase (i.e. they’ll want a rainy-day fund rather than a new designer raincoat), lowering demand in the economy and thus further cooling inflation.