“If you’re the average American household, you’re probably wondering, ‘What did I do to deserve this?’” That is Joe Brusuelas, chief economist at RSM, and the Journal’s weekend economy story is essentially a long answer.
The list is short and everyone knows it: mortgage rates at 6.95%, up from just over 3% in early 2022; gasoline near its highest since 2022; the first Federal Reserve rate increase in three years; consumer prices up 3.4% from a year earlier; wages that have trailed inflation for five straight months and, with the recent jump at the pump, will probably trail it a sixth. Arthur Okun’s misery index — inflation plus unemployment — sits at 7.5, up from 6.7 in October 2024.
The other column
Every one of those numbers has an answer on the other side of the ledger, and the story is honest about them. Unemployment is 4.1%. Household net worth hit $186 trillion in the second quarter, a gain of $26 trillion since the end of 2024, thanks in large part to a stock market near its record. August retail sales beat expectations. Fed Chairman Kevin Warsh, explaining Wednesday’s decision: “Consider the geopolitical landscape of shocks and uncertainty, and you begin to appreciate the resilience of the U.S. economy.” Heather Boushey, formerly of the Biden Council of Economic Advisers, offered the rejoinder that “the stock market isn’t really an indicator of how families are doing.”
Both are right, which is the problem. The average is at a record. The household is at the pump. The University of Chicago’s Christina Patterson adds the detail about the workers whose wages did keep up: they got there by negotiating, switching jobs, threatening to leave, losing co-workers and moving. “All of those actions are costly.”
Battle Creek
The story’s human center is Stacy Hislop, 64, a retiree in Michigan. Her Social Security is about $1,900 a month. This year she withdrew $2,000 from savings, leaving roughly $13,000 in the bank. She canceled a road trip to Tennessee over gas prices and sells Disney snow globes and 1990s Tommy Hilfiger on eBay. “My real nest egg is the house I have,” she said. She owns it outright. “But if interest rates are going up, that’s not going to sell very fast.”
One more finding worth keeping: surveys by economists Alberto Binetti, Francesco Nuzzi and Stefanie Stantcheva show many people believe Fed rate increases are inflationary. They arrive together, so cause and effect get mixed up. Gregory Daco of EY-Parthenon gives the honest lag — about a year for a rate increase to show up in inflation — which means costs rise first, and the relief the Fed is buying arrives after the vote.
Our read
This desk writes plans for people who look a lot more like Stacy Hislop than like the household net-worth figure, and her situation is the plan in miniature: a fixed income that lags prices, a small cash cushion, and a house that is most of the net worth and is illiquid precisely when rates rise. The three checks that come out of it are not exotic. Twelve months of expenses in cash if you are over fifty, in an account paying near 3.8% rather than the 0.44% national average. A written spending floor, so a road trip is a choice and not a casualty. And a candid number for the house — what it would sell for in a 7% mortgage market, not what it was appraised at in a 3% one.
The politics of this will be decided in seven weeks. The arithmetic of it will not change for a year, because that is how long the medicine takes.