Does interest rate pain explain the consumer sentiment gap?
Most calculations of inflation don’t factor in the impact of changes in interest rates
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THE apparent disconnect between the state of the US economy and voters’ perceptions of it has puzzled economists for months. Unemployment is low, inflation has come way down and real wages are no longer lagging behind.
Yet consumer sentiment is still lower than you would expect.
A new paper offers a concise and persuasive explanation: “Consumers, unlike modern economists, consider the cost of money part of their cost of living.” The authors are former Treasury secretary Larry Summers, Karl Schulz and Judd Cramer of Harvard, as well as Marijn Bolhuis of the International Monetary Fund.
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