High Fed Rates Are Not Crushing Growth. Wealthier People Help Explain Why.

Because many Americans feel good about their personal finances, they have also continued opening their wallets for vacations, concert tickets, holiday gifts, and other goods and services. Consumption has remained surprisingly strong, even two years into the Fed’s campaign to cool down the economy. And that means the Fed’s interest rate moves, which always take time to play out, seem to be even slower to work this time around.

“Household finances broadly still look pretty good, though there is a group feeling the pain of high interest rates,” said Karen Dynan, an economist at Harvard and a former chief economist at the Treasury Department. “There are a lot of households in the middle and upper part of the distribution that still have a lot of wherewithal to spend.”

The Fed meets in Washington this week, which will give officials another chance to debate the economy and plot what comes next with interest rates. Policymakers are expected to leave rates unchanged and are not scheduled to release economic projections at this meeting. But Jerome H. Powell, the Fed chair, will give a news conference after the central bank releases its rate decision on Wednesday afternoon, providing a chance for the Fed to communicate how it’s understanding recent inflation and growth developments.

Officials have raised interest rates to about 5.33 percent, up from near zero in early 2022. Those higher central bank policy rates have trickled through markets to push up credit card rates and the cost of auto loans, and have helped to prod 30-year mortgage rates to about 7 percent, up from less than 3 percent just after the onset of the coronavirus pandemic.

But hefty rates have not hit everyone equally.

About 60 percent of homeowners with mortgages have rates below 4 percent, based on a Redfin analysis of government data. That’s because many locked in low borrowing costs when the Fed cut rates to rock bottom during the 2008 recession or at the onset of the 2020 pandemic. Many of those homeowners are avoiding moving.