The long game of high interest rates

Make Me Smart May 31, 2024 Transcript

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Kimberly Adams 

Yes, we have quite a few library fans in the chat. Hello everyone, I’m Kimberly Adams. Welcome back to Make Me Smart, where we make today make sense, especially Fridays, which make much more sense than other days of the week if I must say so myself. Today is Friday, May the 31st.

Kai Ryssdal 

I’m Kai Ryssdal. Thanks for joining us on the podcast and on the YouTube live stream. It is, Kimberly said, it is Friday. We will do our weekly happy hour episode Economics on Tap. We’ll start us off.

Kimberly Adams 

Yes, and today we are going to get to some news. We’re going to take a break, and then play a game. But of course, we have to start with drinks. I see your Pewabic mug, Kai. I’m about to say Cairo. Not Cairo. Kai. Kai. What do you have in your Pewabic mug?

Kai Ryssdal 

I have a cup of coffee because I have some things to do later on today. And you know, it is only 3:30 out here, so I can’t really drink. Or else I’ll just keep drinking.

Kimberly Adams 

See, if I drank coffee at 3:30 in the afternoon, I’d be up until the next day. I could not do it. Like even on the days where I do need to drink coffee, it’s like a single cup, maximum two if things are dire. And only first thing in the morning. I cannot.

Kai Ryssdal

Wow. Wow.

Kimberly Adams

Yeah. I have high caffeine resiliency.

Kai Ryssdal 

What are you drinking?

Kimberly Adams 

I am trying a new drink today. I’ve had this for a while, which is Old Fashioned syrup from a company called Pratt Standard Cocktail Company, which is I think, a DC company. But it’s agave spice, and it’s used to make in particular, a tequila Old Fashioned. And so, which is not something I’ve had before. And so, you basically use the Old Fashioned syrup, and then you add tequila or mezcal, and then an orange peel. And that is what I am trying today. And it’s got like, many spices and things. And this is what it looks like. And I had a little sip earlier, it’s good. It’s perhaps a little stronger than a typical Old Fashioned to me, so I’ve got a giant ice cube in it. And I’ll be sipping it very slowly.

Kai Ryssdal

There you go. There you go.

Kimberly Adams 

What’s your news, Kai?

Kai Ryssdal 

Oh, so look, this one has sort of been everywhere if you’ve been listening to, you know, headline news, it’s probably item number four or five after news of the trial, the verdict and all that. But the Fed’s preferred measure of inflation, PCE, came in today 2.7% year over year, which is much better than it has been obviously, but still not where the Fed wants it, and I bring it up to make sure people realize this. Interest rates are going to be much higher for much longer than we thought even three months ago. I think it’s likely that we’re not going to get a rate cut this year, and that we’re going to 2025 with interest rates where they are. So, let’s think about what that means housing, right? Mortgage rates are going to stay high, car insurance, credit cards, all those interest rates are going to stay really high. I bring that up for reason number two: that’s going to hit the lower part of the income spectrum much harder than it’s hitting the upper part of the income spectrum, right? Interest rates are an annoyance, right? Inflation is an annoyance for people in the upper end of the income spectrum, but people in the lower end of the income spectrum who pay proportionately higher portion of their income in car payments and mortgages and all this jazz. And in addition to higher prices overall, that’s going to hit more people there, and we all just need to be ready for this. It’s going to be a good long while before rates start coming down. You know?

Kimberly Adams 

Right. And I think that that just exacerbates this issue that the Biden administration and campaign have of trying to sell the message of a good economy when not only our prices demonstrably higher than they were even if wages are up and even if the rate of prices getting higher slowing down, prices are higher than people remember them being recently. And now layer on top of that, that the cost of borrowing is higher, if you are in that lower end of the income scale, and you’re relying on credit cards more, which the data shows people are doing to meet, you know, their daily needs, and even using credit card debt to finance things like groceries and things like that. You are paying that super high interest rate on top of it. You know, it’s been very interesting. You know, I know the algorithms kind of self-select what they show you on social media. But I’ve been seeing all these influencers coming out super strong against legislation or investigations into credit card reward points that the Biden administration is looking into, and they’re like they’re coming after your airline perks. They’re coming after rewards points there. They’re trying to make people who are responsible for credit, you know, suffer and this, that and the other. And I find it very fascinating because rewards points and those perks are paid for by the people at the lower end of the income scale, basically, you know, it’s the people who can’t pay off their bills every month, and who are paying the penalties and paying the interest that are effectively bankrolling the rewards points for the consumers at the top who are able to pay those bills off when they want to, and to see influencers who are talking about like your travel hacks to get a free upgrade, and this, that and the other. Look, I’m a big user of rewards points. I used some of my rewards points today to cash in on some Amazon stuff. Look, I am part of the problem. I guess if you think it’s a problem, but I think that, you know, credit cards in particular are going to be where people really feel this the most. And if you are lucky enough to be in a position where you can pay everything off, good for you. Those perks are probably going to stay and keep getting better. But man, on the other end of that, it’s going to be bad.

Kai Ryssdal 

Yep. Totally, totally. What’s your news?

Kimberly Adams 

Completely, absolutely related to exactly what you said. It’s about interest rates and housing. So, housing is such an issue, especially if you’re trying to buy a home, especially if you’re a first-time homebuyer. So, CNN has an article about the return of zero down mortgages, which were a thing right before the financial crisis. I’ve seen stories in recent months about the return of adjustable-rate mortgages because people were convinced that the rates being this high was a temporary thing. So, get an adjustable-rate mortgage, and then it’s going to go down later, right? But if you have rates higher for longer, that adjustable-rate mortgage doesn’t help you as much as you think it did. And people with zero down mortgages. On the one hand, it can make homeownership a little bit more accessible. And I was just doing some reporting on the mortgage interest deduction with home prices being what they are, and interest rates being what they are, it means that more people will pay enough in interest that they might be able to actually claim that deduction over the standard deduction. But the risks are quite high. You know, as CNN points out if housing prices go down, you’re in real trouble. So, it says, “if the homeowner needs to sell quickly, perhaps because they lose their job, face financial distress or need to relocate. Suddenly, they’d be on the hook to pay back either the second mortgage,” if they’re using a second mortgage to, you know, close the gap for the down payment, or just, you know, for the mortgage overall. And if you’re underwater if your home value, because remember, house prices are extremely high right now, there’s a lot of bidding wars. And if prices go down even a little and you’re in a zero-down mortgage, you can really get underwater quickly. And that can be quite risky. And this is exactly what happened during the subprime crisis, and so, just be careful out there. And then I saw another story where the Consumer Financial Protection Bureau is starting to look into as part of the overall effort to go after junk fees, closing costs for housing, and in particular, they’re looking at discount points. Apparently, a lot more people are trying to buy discount points on their mortgages now because the idea is that if you have are stuck with a high interest rate, why not pay up front to lower that interest rate to keep your cost down earlier, but there’s not really a set value of a discount point. And the CFPB is a little bit worried that people are getting scammed. So, they have regulations.gov, a request for information for potential for proposed rulemaking.

Kai Ryssdal 

Oh my god. All right. We’re going out on that one. Quick break, and when we come back, Half Full/Half Empty.

Kimberly Adams 

All right, we are back. Time to play Half Full/Half Empty. Today we have a very special guest for our Half Full/Half Empty, the one the only, the early fade in on the end credits, Jay Siebold. Take it away Jay.

Jay Siebold 

Okay. Drive with me on this here. Much like the Beach Boys, the Beach Boys rode on the West Coast sunshine and surfing to the rest of the landlocked US, right? And automaker GM, they shared a taste of California culture with the world 60 years ago with the debut of the Chevy Malibu. The sleek two door top-down cruiser morphed eventually into a household four door sedan through the years, but it outlasted 10 US presidents. But you can’t elect it to office because for one it’s a car but also, GM announced its putting the Malibu out to sea, ending production at the end of the year. So, are you half full or half empty on the discontinuation of the Chevy Malibu?

Kai Ryssdal 

I’m okay with that. I think 60 years is a long time. I just do want to give a shout out to the run up to that question.

Kimberly Adams 

I know that’s what I was going to say. I’m half full on your setup. I love it. Even if I hear the original story, I would have been like, woohoo. I know what’s going on. Yes, love. Yeah. Let’s see. Car being around for a really long time, not being around anymore, aren’t they retooling the factory to make EVs instead?

Kai Ryssdal

They are indeed. They are indeed.

Kimberly Adams 

Half full. Let’s do it.

Jay Siebold 

Okay, well, why don’t we move on here. Let’s think about leaving the office today. In your case, your houses. So, you leave. You log off for the last useless Team video meeting for the week. You slink out to your neighborhood local for a quick taste of your choice. You get in line to pay, and boom, you’re suddenly transported into another Zoom meeting. And not only is there no escape from digital meetings, now they want your money. So, are you half full or half empty on Zoom cashiers?

Kai Ryssdal 

Oh, yes, this is on the show this week. Yeah, I’m half empty, man. I’m half empty. I don’t need. If you’re going to make me like, deal with that, just take my money like electronically. I’ll you know, wave my phone over the thing. I don’t need a cashier. Just no. Empty.

Kimberly Adams 

I encountered this in real life. You know where it was? It was when I went skydiving for my 40 skills for 40. There was like, the guy there who like took us to the safety briefing. And then he was like, yeah, go over there to that kiosk to pay and check out and I was like, come again? And there was a dude sitting there you know, on the video chat just like hey, here’s what we go through and pay over here and sign this and accept these disclosures, and it was so disorienting. Pass. Yeah, I didn’t like it. Didn’t like it.

Kai Ryssdal 

Totally, totally.

Jay Siebold 

Next up, Disney theme parks. They’ve made headlines the last three years or so for increasing ticket costs to combat demand at the parks and overcrowding. Disneyland in California in case, Kai you were planning to head down there today, just to get in you’re going to pay about 200 bucks. And you’re still paying for the Mickey ears and hot chocolates that you want on top of that.

Kai Ryssdal

Yes, you are.

Jay Siebold

Well, way across the pond, the little hamlet of Venice, Italy got to thinking hmm, we liked this ticket idea. The canals are practically a theme park ride, right? Are you half full or half empty on the new admissions fee to Venice, Italy?

Kai Ryssdal 

Yeah, so look, I was in Venice a year ago. Yeah, totally. I was in Venice a year ago. It is not equipped for the number of people it’s getting. It’s doing real damage to the city and the canals and the buildings, which are super old and in tough shape anyway, and global warming and all that jazz. Half full. I’m all the way full. Screw it, I’m all the way full.

Kimberly Adams 

Yeah, I’m way all the way full of communities doing what they need to do to protect themselves from overtourism. Another aside that makes me so sad. My sister and I had big ambitious plans to go to Carnevale in Venice, and we had bought our big fancy dresses. She had this gown and then she got somebody who does like, costume work for the Metropolitan Opera to like jazz it up. She had this while thing. She had the mask. And we had gotten this apartment, this Airbnb on St. Mark’s Square, and we were going to like do all the balls and like live the fantasy in February of 2020.

Kai Ryssdal 

Oh no. Really? Oh, man.

Kimberly Adams 

So, no Venice Carnevale. And it would have been epic. And now, I kind of don’t want to go after hearing about like, the overtourism and the crowding and things like that. So. All right, what’s next?

Jay Siebold 

Okay. Danimals when it launched in the mid-90s, it solved a few problems all at once. The first problem is that kids need to eat more yogurt because you know, the whole build strong muscles.

Kimberly Adams 

Kai’s looking so confused. Do you even know what Danimals are?

Kai Ryssdal 

No, I know. Trust me, I got four kids. I know what Danimals are. It was the turn. I didn’t expect the turn. But Jay, please go on.

Jay Siebold 

So, that’s the first problem. Kids’ gotta eat more yogurt. The second problem, yogurt is not portable, and you need a spoon. So, Danimals. Drinkable yogurt for kids in a cute disposable plastic bottle with a monkey on it. So, we’re now wondering what yogurt problems if any, the founder of Chobani was trying to solve with his recent purchase of the Anchor Brewing Company. Half full or half?

Kai Ryssdal

Oh yeah. I saw that. Oh yeah.

Kimberly Adams

I didn’t. What was it?

Kai Ryssdal 

Okay, so Anchor Brewing is an iconic brewery in San Francisco, which has been, it’s been having a rough time the last three, four and longer than that. I think it declared bankruptcy and then it tried to figure out a way that the employees could buy it and that fell through for some reason. They made a Christmas ale for many years. Maybe they still do. It was like sort of the go to for me and my friends back when we were in college and beyond. Anyway, half full of anybody who cares about it and will take care of it buying.

Kimberly Adams 

Okay, I defer to you on all things beer, so I will say half full.

Kai Ryssdal

Perfect.

Kimberly Adams

I think it’s time for the poll now, yeah?

Kai Ryssdal

Is it? Jay?

Jay Siebold 

Certainly, is time. So, look, you would pay your 20 or 30 bucks to see prog rock legends like Rush at a stadium and then afterward, sure you stumble out to the merch counter, and you get that t-shirt. And yeah, it’s $60 but come on, it’s Rush and you only pay 20 or 30 bucks to get in. Well, a little bit of a different story bow when you go to a concert. Are you half full or half empty on the end of merch?

Kai Ryssdal

The end of merch is a thing? Merch is ending?

Kimberly Adams 

Why would merch end?

Jay Siebold

It’s the end of merch.

Kimberly Adams 

According to who? I just bought merch at a concert like two months ago.

Jay Siebold 

I think it’s our friends over at GQ who are giving us this information.

Kimberly Adams 

I don’t know that I buy it. I spent $40 on a long sleeve t-shirt for a band I’d never heard of just on a whim. So, I think that concert merch. Because it had a funky little design on it, and I want to support the small artists, you know? And I don’t know. I think. So, I don’t go to that many concerts in general. Because I generally don’t like to be in crowded places with lots of people. Thank you, Egyptian revolution. And so, I don’t go to that many concerts, but what I do I try to like, make sure I’m supporting the artists and get something.

Kai Ryssdal 

Yeah, I think that’s totally right. And, you know, all of you in the in the chat, you know, vote accordingly. But it’s a little memento and look, are they expensive? Too expensive sometimes? Yes. But, you know, as a percentage of that ticket price, probably not that much. Yeah, I’m all in favor of merch. That’s, you know, buy an experience. Totally.

Kimberly Adams 

By the way, Jay, you’re getting some love in the YouTube chat for your setup for these, which I have to say is fantastic for all of these.

Kai Ryssdal 

It is indeed. It is indeed. Alright, now that we weighed in on a valance as it were, let’s close that poll. Somebody tell me in Slack or wherever what the results of the poll were.

Kimberly Adams 

Oh, half empty 78%.

Kai Ryssdal

Really? Really?

Kimberly Adams 

I mean, fair about the disposable clothes and like, the not being into the super consumerism but like these artists gotta make money somehow.

Kai Ryssdal 

Yeah. Especially by the way smaller artists, right? It’s not like Taylor Swift or Beyonce are surviving on you buying their merch, but smaller artists and smaller clubs. That’s where a lot of the money is.

Jay Siebold 

I’ll say this real quick. It used to maybe mean a little more when you saw somebody out in the wild with a dead you know, Grateful Dead t-shirt on or whatever it might be. These days, Target for $10 is selling band t-shirts that likely some of the kids have never listened to, so I don’t know.

Kai Ryssdal 

That’s true. We are being corrected in the poll in the chat, Kimberly. The half empty. The question was the end of merch, so people are half empty of merch. That’s the way I rate it as well. Everybody wants to keep the merch. There we go.

Kimberly Adams 

Okay, good to hear it. Okay, so we’re all mostly aligned. Okay. Well, that should be it for us today. Now, speaking of merch, thank you so much to everybody who stepped up and made a donation during our May fundraising drive and got your own Marketplace merchandise. Your mugs, your hats, your Jasper tumblers, your t-shirts or whatever. We had 3,340 people who stepped up and helped us out. Really appreciate it. And thanks to you, we are happy to share that we did successfully meet our goal from May.

Kai Ryssdal 

Couple of you who gave. We’ll shout some out here. Christopher in Langley, BC. Sharon and Agawam in Massachusetts. Neil and Kathy, they’re in Hawaii. And many, many, more. And Kate Gilbert actually who I met this past week. Literally cannot do this without you, so thanks.

Kimberly Adams 

Please, and thank you. We really do appreciate it. I know it’s kind of a drag to hear us asking for money all the time. But you all see the same headlines about the industry that we do, and we need it, and we appreciate it. So, thank you. Oh, and one more thing. Next week, we are going to do for our deep dive we’re going to get smarter about something else nerdy but near and dear to my heart, election polling and how you can know which polls to trust, should we trust polling at all is polling even relevant anymore in the age of no one answering their landlines, which apparently, I’m the only one who still has. But look, we want to hear from you. What do you want to know about polling ahead of the 2024 election? You can let us know at 508-U-B-SMART or email us at makemesmart@marketplace.org.

Kai Ryssdal 

Make Me Smart is produced by Courtney Bergsieker. Today’s episode was engineered by Charlton Thorp. Our intern is Thalia Menchaca.

Kimberly Adams 

The team behind our Friday game is Emily Macune, Jamila Huxtable, and Antoinette Brock. Marissa Cabrera is our senior producer. Bridget Bodnar is the director of podcasts. And Francesca Levy is the executive director of Digital and on Fridays On-Demand team, too.

Kai Ryssdal 

But only on Fridays, and a shout out for Jay Siebold for stepping up.

Kimberly Adams 

Shout out to Jay Siebold.

Kai Ryssdal 

There we go. We’ve come to that time of year where the shed gets all stuffy and gross.