WASHINGTON–American households are earning an additional $121 billion in income on investments annually versus a year ago, helping to offset the $151 billion increase in interest payments on mortgages, credit cards and other loans, according to Commerce Department data through June as cited by the Wall Street Journal.
Driving the increases, of course, has been the two years of efforts by the Federal Reserve to raise interest rates to their highest point in more than two decades, with yields on the three and six-month Treasurys now about 5.5%, the highest since 2001. Money-market funds, which typically invest in T-bills or park cash at the Fed, are offering rates above 5%. And certificates of deposits have also increased, with at least one CU offering a 7% rate as part of a special promotion.
“Sure, rates are higher, but people haven’t had a really big reset in costs,” Bob Elliott, co-founder and chief executive of asset manager Unlimited Funds, told the Journal. “A lot of folks have financial assets that are benefiting from elevated interest rates.”
Households aren’t just seeing more income from deposits in traditional vehicles. The S&P 500 is up 19% this year and big-tech stocks have soared after a dismal 2022.
“Along with a renewed sense of wealth, the historically tight labor market has driven consumer confidence to a two-year high,” the Journal added.
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