The Fed keeps insisting, in some cases against the evidence, that rate hikes are working to cool the world’s largest economy and thereby inflation.

I say “against the evidence” because the US economy’s not really cooling and although headline and core inflation are obviously down dramatically from the highs, the latter’s a bit obdurate and the PCE-derived “supercore” measure eyed closely by officials was far too warm in the last update.

I think we all understand by now that whatever the Fed wants to say about the effectiveness of monetary policy, the transmission mechanism’s not as efficient as it might’ve been during yesteryear’s hiking cycles. Part and parcel of that’s the low share of variable-rate debt on household balance sheets,which can in turn be explained by the ubiquity of the 30-year fixed rate mortgage. 2020 and 2021 offered a historic refi opportunity for anyone not enjoying an ultra-low rate on their rent-to-own arrangement with the bank.

The figure above gives you some perspective. On the eve of the Fed’s first rate hike of the cycle, the effective rate on the nation’s mortgage debt was less than 3.31%. (And it’s a good thing: Because when the median national income’s ~$75,000 and the median home price is a Cullinan plus a matching Vacheron, financing costs better be pretty damn low or else you might be staring at a homelessness crisis.)

By the time the Fed got around to raising rates, Americans were insulated. As were corporates, who were likewise afforded a chance to lock in low, long-term financing costs in the immediate aftermath of the pandemic.

But rate hikes may be starting to bite. Finally. Delinquency transition rates rose during Q4 to the highest since Q2 of 2011, and the country’s $1.13 trillion pile of credit card debt seems perilous when set against the highest card rates in recorded history.

In a testament to the starkness of the juxtaposition between ultra-low, fixed-rate mortgages and rapidly rising rates on other kinds of debt, Americans were spending as much on non-mortgage, personal debt service payments in January as they were on mortgage interest in Q4, according to government data.

As the chart shows, the run-up in Americans’ consumer debt servicing bill was quite rapid. It’d be hilarious if it weren’t so ominous.

But is it actually ominous? Not yet. No. Or at least probably not. Household balance sheets are still in decent shape. Wage growth’s outstripping inflation. And the wealth effect from record-high stock prices serves as a counterbalance to the more onerous debt servicing burden. And that’s to say nothing of billions in monthly interest income that’s accruing to households with meaningful sums parked in money market funds yielding in excess of 5%. All of that should support spending, and could thereby keep inflation elevated.

Of course, that narrative only works at the aggregate level. Those offsets aren’t applicable to households which rely heavily on variable-rate debt. If you’re putting everything on your credit card, chances are you don’t have $750,000 in an S&P ETF and $500,000 parked in a money market fund. If the people who do (America’s “haves”) keep spending and their consumption addiction prevents inflation from receding in a timely fashion, it’s insult to injury for the people who don’t (the “have-nots”).

But don’t let the details spoil your generic “households are in good shape” narrative.