The Real Pain From Rate Hikes May Still Be on the Way

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Joe Weisenthal (1:07)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (1:12)

And I'm Tracy Alloway.

Joe Weisenthal (1:13)

Tracy, we've been on the road a lot lately.

Tracy Alloway (1:15)

I know, it's been nonstop trips. Let's see, we did Jackson Hole, and then we went to California at Huntington Beach, and now we're in Austin, Texas, your hometown.

Joe Weisenthal (1:25)

Have you enjoyed Austin so far?

Tracy Alloway (1:27)

I love it. I mean, I'm not gonna lie, large parts of it do remind me of Dallas.

Joe Weisenthal (1:32)

What?

Tracy Alloway (1:32)

But, controversial opinion, but it has its own thing going to like amazing bars, restaurants, shops. We went cowboy boot shopping at Allen Boots.

We've had some amazing Tex-Mex, really excellent barbecue at Terry Black's. It's been good.

Joe Weisenthal (1:49)

Yeah, we were in Jackson Hole, and we did a lot of episodes in Jackson Hole, but a lot of them were sort of like these sort of like longer running like academic questions that a lot of the episodes that we did, we didn't really do too much there. I'm like, okay, but like what's happening right now in the economy with like monetary policy, the impact of the Fed rate hikes, things like that, even though that's sort of on a lot of people's minds.

Tracy Alloway (2:13)

Yeah, funnily enough at a macro economic conference, the real economy wasn't the first topic of conversation. Although that's a little bit unfair because they did talk about supply chains and things like that, but you're right. We haven't done a current state of the economy episode for a while, although we've touched on it in various ways.

One of the more recent ones was when we spoke to Wayne Dahl from Oak Tree about the credit market and a big topic of conversation in there was, why haven't we seen more of an impact from this historic pace of rate hikes on the real economy?

Joe Weisenthal (2:47)

Yeah, it feels like this is still this looming question. And until we have a sort of better idea of what's going on here, I think there's like a sense of unease. And even at Jackson Hole, at Powell's speech, even with the improvement in inflation from last year, there is this still underlying sense of unease, which is partly driven by the fact that we've seen improvement, but it's like we can't quite explain why, because drawing that line between the rate hikes to the improvement in inflation is hard to draw.

You would expect that, okay, if unemployment had been rising significantly, it's like, okay, well, we could tell the traditional monetary policy story.

Tracy Alloway (3:28)

Phillips curve is alive and well.

Joe Weisenthal (3:30)

Yes, we can't quite tell that story, and then maybe it has something to do with the terming out of the debt that we talked about, Wayne Dahl.

And then if that's the case, well, what does that mean then? Are we still gonna feel the impact? So it's like there's improvement, but it's like there's like sense of unease underneath.

Tracy Alloway (3:46)

Absolutely, but the most simple explanation for what's been going on is, yes, we had a massive terming out of debt on the corporate side, and arguably on some individuals as well, homeowners, for instance, and that's provided a cushion between 2021, 2020, 2022, and where we are now, but it can only last for so long, and you're sort of getting back to the traditional long and variable lags argument. Maybe this is just the longest lag that we've seen in many, many years.

Joe Weisenthal (4:19)

So we did actually have this conversation at Jackson Hole. But we just didn't get it on the record. We just didn't.