Some suggest that news about inflation and higher prices might be somewhat exaggerated. Certainly, minimum wages have increased considerably, but so has the cost of essentials such as food, rent, insurance, and many non-durable goods. Homeowners took advantage of long-term, low-financing options in the initial stages of the Pandemic. However, as interest rates have risen and remained elevated, we are seeing a surge in credit card delinquencies and other loans linked to floating interest rates. One outcome of higher rates has been the steady increase in net interest payments as a percentage of the total Federal outlays, reaching levels not seen since the early 1990s. The projection for the net deficit could increase further if the tax cut and Jobs Act (TCJA) tax rates extend beyond 2025. During this election year, as the Republican camp advocates for higher tariffs on imports and the Democratic camp seeks to increase government spending further, it is likely that maintaining low CPI will continue to be the priority for the Federal Reserve, regardless of which party holds power. It's important to note that the long-term implications of mounting deficits could threaten the key advantage that the U.S. has, which is its superior credit quality and the global confidence in the government's ability to service its debt.

Higher rates have primarily affected individuals and businesses at the lower end of the income spectrum. However, this group does not significantly impact the overall economy. Overall, the willingness of the consumer sector to spend has not diminished, at least not yet. The U.S. continues to experience steady GDP growth at a rate of 2%, and the Federal Reserve has not yet been ready to declare a victory over the monster of inflation.

Access the Canterbury Outsourced CIO: Second Quarter 2024 Commentary