Economic DiscussionEconomySHJ Blog

Inside the Economy: Inflation and the Fed

By September 20, 2023No Comments

This week on “Inside the Economy”, we address new economic data. CPI jumped month over month, largely due to the increase in oil prices. How will this impact the Fed’s decisions for the rest of 2023? Overall, the economy is moving along, due to a strong consumer. Will the restart of student loan payments change this? Tune in to learn about this and more!

Key Takeaways:

        • Bond yields continue to tick up
        • Oil prices climb above $90 a barrel
        • Mortgage rates elevated above 7%


Full Transcript:
Welcome to this week’s Inside the Economy!

My name is Cody Campbell and I’ll be filling in for co-founder Larry Howes as he’s trekking through my old stomping grounds in the Midwest. We actually sent him there to resolve the UAW strike and help contract negotiations. Could you imagine? Well, I’m going to try my best to keep this loose and colorful. Today I’ll address some new economic data which is such an oxymoron, new economic data.

Anyways, I’ll be remiss if I didn’t talk about inflation in the Fed. And I promise you it’ll be a different take than the politicians and media types. And if I don’t get too carried away, I’ll talk about markets and what’s driving them.

First, let’s run through the numbers. ISM non-manufacturing ticked up. CPI data came in hotter month over month, which made some people jump out of their seat, more on this in a moment. PCE is still around 4%. Not much has changed on the jobs front or treasury yields. Oil continues to rally as our acquaintances, which is probably a generous word, overseas has been cutting supply.

Okay, great philosophers or great speakers or just people of influence are usually great because they can take a complex topic and simplify it for the masses. Inflation’s complexity is undefeated and no one’s been able to simplify it. It’s probably because there’s so many different components to inflation that can’t be generalized. And to make things harder, everyone is impacted differently by it.

As you can see, the excitement in the CPI month over month in August was due to energy, gasoline, fuel, airline fare carried the team here. I’ll circle back to the Fed and inflation, but let’s move on to housing for a minute.

This data is fascinating to me. We all know there’s been a migration south as boomers flee for warmer weather and lower state tax rates. And new homes are popping up like weeds, but still can’t keep up with demand.

A survey was done and the result was 32% of new homes nationally are first time homebuyers. How can first time homebuyers afford these new homes with rates north of seven and a half percent?
Well, rate buy downs or special incentives are influencing the majority of this. Also contributing would be just smaller floor plans and help from family. How many people are helping their kids or grandkids with down payments? Some rough mortgage math, $50,000 more towards the down payment at seven and a half percent. Interest rates will reduce the monthly payment by about $350 a month, for principal and interest. $100,000 down would reduce it by $700 a month.

Rates have slowed inventory and moved the bar higher for first time homebuyers. But the marketplace seems to be able to stomach the current prices and rates. Economic data is still decent overall and we’ve been searching high and low for bubbles, bad news, something, anything to make us feel anxious, but we just can’t find it.

This is the quarterly change in total mortgage debt. Really, there’s nothing to see here. The big spike on this chart was coming out of COVID. A lot of it was refinancing, taking cash out, opening a line of credit for the big home improvement boom that we saw post pandemic.

People aren’t doing much of these things right now and still have ample equity in their residences. A lesser known recession indicator is heavy truck sales, that’s trucks over 14,000 pounds. Sales continue to grow year over year, and they were strong last month. As we continue to invest in American manufacturing and infrastructure, this should be a net positive for our economy.

It seems everyone is baffled by why things are continuing to do okay in the economy with how drastic interest rates have moved. Theoretically, higher rates should discourage borrowing, incentivize savings. We should see higher unemployment, slower demand, housing prices coming down, but we just aren’t seeing any of that.

Many chalk it up to monetary policy having a lagging effect, but I’d argue the fiscal impact has contributed in a big way. What do I mean by fiscal impact? Given our current debt to GDP situation, the amount of cash on corporate balance sheets and in consumer pockets, higher rates has had a tremendous fiscal impact.

People and corporations have more money because rates are higher. Payments on treasury interest alone year over year will increase some $600 billion. Consumers have cash and CDs and money market funds that are paying north of 5%.

In summary, I think the higher rates go, the stickier inflation becomes, and people with money will have more of it. To provide some evidence, look at this chart of Microsoft. It’s showing their interest expenses versus their interest income. Look how income has separated itself. And this is due to higher rates. And corporations who have solid balance sheets are earning more on their cash.

Earlier this year, Warren Buffett said he expected a lackluster earnings year. However, the interest income on cash would make up for it, and he couldn’t have been more right. All of this has had some impact on the stock market, but the storyline has been centered around AI and that momentum and the separation of the largest companies within the indices compared to the rest.
As you can see, the S&P 500 median return for the companies in the index is up 5%, compared to the actual index being up about 18 and the top 15 companies being up 42%. You can see a similar theme overseas in Europe and Japan, a kind reminder to not compare your portfolio with these indices, as it’s never apples to apples.

Okay, last piece of news before I sign off. Student loan payments resuming have people stressed out. You can see the uptick in mentions of student loans on conference calls with public companies, and I’m sure this will continue to increase.

The average payment is estimated to be about $200 a month, which will equate to about 100 billion per year of loan payments. Many people who can’t do math are saying this will subtract about 9 billion from the economy per month. However, anecdotally it’s not dollar for dollar as payments could easily subtract from savings rather than spending on someone’s cash flow. I don’t want to discount anything. I think the impact of student loans will be minimal on the overall economy.

As always, I enjoyed my time today. I hope you did as well. If you have questions, please email them to

My name is Cody Campbell. I’ll see you next time!

Leave a Reply