Aggregate Demand Impulse Response (12-Quarter Horizon)
Traditional contractionary force: higher mortgage rates, auto loan fees, and corporate borrowing suppress investment and credit consumption.
Expansionary cash-flow: elevated money-market and short treasury yields directly pad spending power of high-saving elderly and wealthy demographics.
Blunting factor: robust corporate earnings and retail stock market resilience sustain household balance sheets, neutralizing rate friction.
Quarterly Impulse Trajectory Schedule (% GDP Impact)
| Quarter | Active Net Drag | Borrowing Channel | Interest Channel | Wealth Channel | 1980s Baseline Drag | Blunting Delta |
|---|
The Macro Paradox: When Stock Wealth Shields The Consumer
In the 1980 Volcker era, household equity ownership stood near 20%, concentrating rate sensitivity in traditional lending channels. Today, over 58% of U.S. households hold equities directly or via 401(k) accounts, with total financial assets exceeding 2.4x personal income. When the central bank hikes rates, the contractionary drag on mortgages and auto debt is heavily cushioned by 5%+ yields on money market assets and buoyant equity balance sheets. To produce the same 1.0% GDP deceleration achieved in 1981 with a 109 bps rate hike, central bankers today must hike by 234 bps.