Who Really Pays for Rate Rises

The rate rise lands on the wrong people

Tuesday's hike took the cash rate to 4.85%. The RBA likes to say the hit to borrowers' cash flow is not the main way higher rates work. The ABC's Michael Janda points out what that line leaves out: for every extra dollar households have paid in interest since 2022, households as a whole have received roughly 72 cents more in interest on their savings.

In plain terms, savers, mostly older Australians who have paid off the house, are doing fine. The people carrying the load are younger households with the biggest mortgages, the smallest buffers and young kids. They are exactly the people who drive spending. Squeeze them hard enough and you do not get a soft landing, you get a recession.

Our lens: we have been flagging stagflation risk, the mix of high prices and high unemployment last seen in the 1970s. With the government now insisting it will cut spending rather than cushion the blow, that risk has gone up, not down.

What we would do: respect valuation, focus on not losing money, and hold some cash so falls become opportunities rather than emergencies. What we would not do: assume property only goes up, or take on more leverage because rates "have to come down soon".

General commentary only. Not a recommendation and not personal advice.

Read: The brutal redistribution at the heart of the RBA's interest rate policy (ABC News) →

Property: the stock is piling up

Listings say more than price indices can. Distressed sellers are up sharply, and older stock is sitting unsold. Total national listings are now about 300,000.

The US: a country in transition

Trump's Republicans took a heavy beating at the midterms. Steve's notable observation: no claims this time that the vote was rigged. One of the bigger losers looks like the AI sector, with data centres becoming a genuine election issue, even in Texas. Meanwhile governments from Italy to US states are going after the wealthy for revenue.

Want the full picture? Signals & Noise Premium members get our full market analysis every week, plus a monthly live coaching call with Steve, Tom and Jacob where you can bring your own questions. This week that also includes Steve's full Members Message, the Europe and Iran read, the GDP chart showing where the spending boom really came from, a first look at our next book, Financial Fibs, and the Weekly Video Review.

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Watch your edge

The rate does the work, not the time

Divide 72 by your compound rate and you get the years it takes to double your money. At 10% it is about 7 years. At 2% it is 36. The industry tells you to start now and let time do the work. But the rate you compound at depends heavily on the price you pay, and that depends on when you buy.

That idea sits at the heart of our next book, Financial Fibs, by Steve Moriarty and Jacob Senior. Premium members get the first excerpt this week.

This newsletter is for informational purposes only and does not constitute financial advice. Total Money Management | AFSL 568642.