What if the Fed were doing exactly the wrong thing? What if, by raising short-term interest rates, it was actually adding to inflation instead of cutting it?
The Voss Capital argument is counterintuitive but not crazy. In a nutshell: Higher interest rates aren’t hurting consumers and companies as much as the Fed thinks, because so many locked in low long-term interest rates during the golden days of the zero interest rate policy. Consumers refinanced their mortgages for 30 years at 3% or less. Companies issued long-term bonds on similar terms.
Meanwhile, skyrocketing mortgage rates have strangled housing supply. Nobody with a 30 year, 3% fixed mortgage wants to sell their home and lose that cheap debt unless they have to. Result? Inventory on the housing market has vanished. There are very few homes for sale. It’s a seller’s market, and therefore prices have stayed high.
According to federal government estimates, “the rise in rates has only had -$5B annualized net impact to consumer’s financial picture overall, an amount that is a literal rounding error relative to annual U.S. consumer spending of ~$19 trillion.” Meanwhile, there is a cruel paradox in this argument. While higher interest rates aren’t hurting consumers overall anywhere near as much as the Fed thinks, there is one group who really is getting pummeled: Poorer consumers, which includes not merely the very poor but also many blue collar workers and younger professionals.