Famous last words?/The arbiter of taste

"All the talk of us having a recession has vanished" said NY Fed president John Williams yesterday in a Bloomberg interview. If only 550 bps of rate increases over 18 months will be so easy with its gentle impact on the economy and just because it hasn't happened yet doesn't mean the impact of the current much higher rate world is over. We have to understand that it is not really the current level of interest rates in an absolute sense that bites. What bites is that it comes after 15 years of interest rates that didn't really exist. From September 2007, right before Bernanke started slashing rates and QE began, through February 2022, right before the Fed starting raising rates, the 2 yr yield averaged 1.00% and the 10 yr yield averaged 2.40% vs 4.94% and 4.25% right now respectively. 

Also, the average 30 yr mortgage rate in that time frame averaged 4.22% according to Bankrate vs about 7.5% today. The average credit card interest rate was 14.4% vs 22.2% today. The average 60 month loan to buy a new car was 4.40% vs 7.44% today. Used car borrowing rates today are double digits in many states vs about 5% in the years before Covid. 

On the corporate side, the average yield a junk rated credit paid in those 13 years was 5.44% vs the current rate of about 8.50%. For an investment grade company, the average rate paid was 2.93% vs 5.76% on offer today. Smaller companies that don't have access to the capital markets are paying double digit interest rates on loans. 

As so eloquently Jim Grant said in his latest issue, "It was the zero-percent era that made a 5%-plus rate dangerous."