If you’re old enough to remember the last Fed tightening cycle (there’s a joke there, don’t miss it), you doubtlessly recall the FOMC’s struggle to transmit policy restriction to households and corporates.

To be sure, smaller firms and households in the lower-half of the so-called “K-shaped” economy felt the squeeze, but blue-chip firms and well-to-do households were, I dare say, largely unaffected if you don’t count the impact of falling stock prices in 2022.

Indeed, America’s “haves” actually benefited from Fed hikes, as swollen corporate cash piles and, in the case of the household sector, money market funds, began to generate enormous monthly income streams.

On the other side of the ledger, debt servicing costs fell for blue-chip companies and well-off households thanks to the once-in-a-lifetime term-out and refi opportunity created in the wake of the pandemic by the Fed’s backstop for corporate credit and record-low mortgage rates, respectively.

This is a topic that’ll be relevant again in fairly short order assuming the Kevin Warsh Fed eventually moves to tighten policy further. With that in mind, I thought it worth updating one of my favorite 2022/2023 charts for 2026.

The figure above shows you the share of household debt in America that’s variable rate (grey shaded area), along with corporate interest payments as a share of profits (blue line).

Although rising mortgage rates have indeed impacted the household metric, it’s still only just now (and just barely) back to pre-COVID levels. Not surprisingly given how robust corporate bottom lines are, interest payments’ share of profits hit a new low in Q2 of this year.

What does all of that mean? Well, it’s pretty simple really. “Normally, higher rates slow the US economy by directly squeezing corporate profit margins, but corporate net interest payments remain [low],” SocGen’s Albert Edwards said this week.

The red line in the figure above’s another way to visualize the corporate interest payments metric. Edwards plotted it with the real funds rate. The point, obviously, is that the two series are now completely detached.

“To slow the economy, Fed Funds would have to rise higher than it would otherwise,” Albert went on, in the same note.

That, in turn, raises doubts about the Fed’s willingness to do what’s necessary to slow the economy in the event robust spending continues to create demand-pull risks in a supply-constrained environment.

It seems exceedingly unlikely, after all, that Donald Trump’s going to sit idly by as Warsh dials up rates by however much it’d take to turn the screws on America’s “haves” who, both in the household and corporate sectors, remain well insulated.