I’m not going to argue that these things have anything directly to do with each other.
One is a policy and consumer story that affects everyone.
The other is a politics and business story about a man and his effort to make himself look rich.
But if you’re planning to write a newsletter about how higher interest rates are going to affect people and suddenly, the New York attorney general alleges the supposedly billionaire former President enriched himself through access to favorable loan terms, it is not crazy to wonder if there’s some larger cosmic point to be made about easy access to cheaply borrowed cash.
The Fed’s low interest rates of recent years helped inflate the housing market and prop up the stock market during the Covid-19 pandemic for people who could afford to buy homes or invest.
The supersized hike, which was unfathomable by markets just months ago, takes the central bank’s benchmark lending rate to a new target range of 3%-3.25%. That’s the highest the fed funds rate has been since the global financial crisis in 2008.
What it means for people:
- It’ll be even more expensive to get a mortgage — rates were already over 6% for the first time since 2008 and are sure to rise again.
- It’ll take longer to pay off a credit card bill.
- It will get harder to find a job.
Policymakers at the Fed want to strongly address inflation — rising costs — before it spirals out of control, but without doing too much harm to the economy.
CNN’s Allison Morrow described the Goldilocks problem of getting it just right in her Nightcap newsletter earlier this week.
Fed Chairman Jerome Powell has already acknowledged the Fed’s policy will cause some “pain” in the name of achieving some kind of equilibrium.
Allegations about a Trump borrowing scheme
The pain New York Attorney General Letitia James is seeking in civil court for Trump would be punitive. She wants him to pay the state $250 million and to restrict his ability to do business in the state. She’s also referring allegations of criminal wrongdoing to the federal government.
“Claiming you have money that you do not have does not amount to the art of the deal. It’s the art of the steal,” James said at a news conference announcing the suit.
James’ lawsuit lightened the former President, his children Don Jr., Eric and Ivanka, and his company engaged in a scheme lasting over a decade to overvalue their assets and get terms on loans and insurance not available to everyone else. Trump denies any wrongdoing.
Millions of millionaires
As many as 5.2 million people became millionaires last year, with nearly half in the US alone, according to Credit Suisse’s latest annual wealth report.
The millionaires were helped by “significant rises in economic output in 2021, combined with ‘vigorous’ activity in their respective housing or stock markets, the bank said,” according to Toh.
The half-full view of inflation and interest rates
Now, as the cost of borrowing money shoots up alongside the Fed’s rate hike, Americans are going to be nervously watching their 401(k)s and their house values, assuming they’re fortunate enough to have either.
There is an optimistic way to view the Fed’s news, according to the University of Michigan professor Justin Wolfers. Rates are still historically low compared with the anti-inflationary rate hikes of the 1980s.
“If I called my parents and complained to them about 3.25% interest rates, they would remind me back when they were paying 15% or more,” Wolfers told CNN’s Ana Cabrera on Wednesday. “So rates aren’t as low as they once were, but this is not a new world at all.”
He also said not to expect goods affected by inflation to get cheaper.
“It will still be painful at the grocery store for a while, though,” Wolfers said.