Consumers Feel Awful But Keep Spending with Mastercard's Chief Economist Michelle Meyer

Guy Adami (0:00)

Balance your trading strategy by adding futures. CME Group helps you manage risk and capture opportunities in all market environments. Capitalize on around-the-clock access to highly liquid global futures and options market across all major asset classes. Just visit your online broker and get started. Plug into valuable educational materials and trading tools and see what adding futures can do for you at cmegroup.com/on the table.

Today's episode is supported by Astraeus. Everyone in wealth management is racing to adopt AI. The problem? You can't bolt AI onto a stack of disconnected systems and expect it to work.

Fragmented data means fragmented intelligence. Astraeus is the AI native operating system built underneath the firm. One unified foundation that makes AI actually work across data, workflows and advisors. Learn more at astraeuswealth.com/partnerdash with dash us.

SPEAKER_2 (1:05)

iConnections is the largest membership-only platform for the alternative investment industry. Bringing together thousands of fund managers and allocators in one powerful hub, iConnections reimagines how the industry connects through its digital offerings and premier in-person events, empowering allocators and managers to meet, build relationships and do business anytime, anywhere. To explore more about iConnections, its events, and gain access to the members-only platform, visit iconnections.io.

Guy Adami (1:30)

A very warm welcome to the Risk Reversal Podcast. You know it's me, that is Guy Adami. Today, I'm joined by Michelle Meyer. She's the Chief Economist at Mastercard. I thought we've had her on twice, turns out only once. Very memorable. And if you think about the seat that she occupies, very timely as, believe it or not, we head into the holiday shopping season. Hello, Michelle.

Michelle Meyer (1:54)

Thanks for having me back.

Guy Adami (1:55)

It's always great. Now, honestly, it's great to have you. I know you've been on Liz Thomas' podcast. I know you've been on CNBC, and it's great to have you on ours. And let's start with, I think, the obvious elephant in the room, and that's interest rates, which have been heading higher in a pretty meaningful way. And like it or not, in the seat that you sit in, in terms of consumer facing, interest rates have a big influence, a big impact on what goes on.

Michelle Meyer (2:22)

Of course. Yeah. I mean, it impacts the borrowing costs, and borrowing costs are going to impact corporates or impact consumers. When you think about the direct link to consumers, oftentimes you think about the housing market, which for a potential new buyer or somebody who has an adjustable rate mortgage, they're going to be much more sensitive to the everyday fluctuations of interest rates. And with a 30-year fixed rate mortgage now above 7 percent, it's getting that much more expensive, and affordability was already stretched to begin with. That said, for those that are not actively looking to buy a new home, for those that are sitting in a fixed rate mortgage at COVID levels 2.5 to 3 percent, they're not necessarily experiencing that fluctuation the same way. And instead, they're seeing an equity market that is very supportive. If they have money in a checking account or a money market or fixed income, they're obviously getting a better return now.

So the level of interest rates is going to transmit very differently depending on the current state of that household.

Guy Adami (3:21)

Yeah, no doubt about it. And we play this game on fast money. If you had told me certain things six months ago and asked me to gauge where things would be today, I would have made so many mistakes that would make your head spin. And I would have thought the sensitivity around rates to the consumer, especially given the term that everybody loves to use, this K-shaped economy, would have been significant. But I don't think we're necessarily seeing it because there's still this strong consumer spending that we're seeing. So help me to sort of wrap my head around that.

Michelle Meyer (3:54)

I think consumers are driven by a variety of inputs. Interest rates is one, again, if you are actively borrowing money in some capacity, you will feel it there.

But the primary driver for consumer spending is the labor market. And we have seen healthy labor market conditions, an unemployment rate hovering just above 4 percent, faster churn now in the workforce, a broadening of job creation across different sectors, including into the goods economy. You have construction jobs that are picking up, not because of residential, but because of all of the infrastructure that's being built in the economy to support the capex, the AI investment, manufacturing. We're seeing job creation there as well. You've seen the ISM surveys and expansionary territory in the last few months of job growth there as well. So a healthy labor market is the most critical factor for consumers. And then you add on that, the balance sheet, which has looked very healthy given how much expansion there has been in terms of net worth of the last several years now.