American consumers are feeling the pain of higher interest rates while Wall Street is having a ball, economist says

• Households have been hit hard by rate hikes while Wall Street has thrived, economist Stephanie Pomboy says.
• Consumers have faced soaring mortgage payments and credit-card bills, the founder of research firm Macro Mavens says.
• Pomboy flagged a surge in consumer credit-card debt in November as proof of mounting pressure.

American households are bearing the brunt of higher interest rates, while financial firms are raking it in, according to economist Stephanie Pomboy.

"Last year, as they took rates from 4.5% to 5.5%, credit spreads narrowed and stocks rose 24%," the founder and president of the boutique research firm Macro Mavens posted on X this week, referring to the Federal Reserve. "In other words, the markets eased even as the Fed 'tightened.'"

"Meanwhile, the tightening [that] DID take place was on consumers who got savaged by 23% credit card rates and 7.8% mortgages," she continued.

"So, as ever, the Fed managed to crush Main Street while sustaining the monetary casino that is Wall Street," she added. "Why on earth should they continue to foot the bill for this monetary malpractice??"

Pomboy, a former managing director at ISI, was emphasizing the Fed's rate hikes were intended to cool inflation by tightening financial conditions, yet stocks surged and perceived credit risks fell last year.

At the same time, consumers didn't just face sharp increases in the cost of food, fuel, housing, and many other goods and services. They also saw the monthly payments due on their credit cards, car loans, mortgages, and other debts soar.

Pomboy flagged the latest consumer-credit data released by the Fed this week as evidence of a deteriorating situation. Total outstanding revolving credit swelled by $19 billion to over $1.3 trillion in November, an 18% rise from a year earlier, and a 35% increase from the end of 2020. She warned banks could see a spike in loan defaults as more and more people struggle to cover their ballooning debts. 

"I wrote this BEFORE seeing the latest Consumer Credit #s showing an eye-popping $19b increase in credit card borrowing in November," she said in a follow-up post on X. "I shudder to imagine what December's # will look like! whatever bks say this week, beware future Loan Losses!!!"

Pomboy has raised the debt alarm in the past. She cautioned in September that the Fed's rate hikes would ultimately have a "severe impact" on the economy, companies, and household credit. She also predicted that in the aftermath of the disaster, Americans would balk at racking up credit-card debt again as they did after the mid-2000s housing bubble burst.

Several other experts including Michael Burry of "The Big Short" fame and Bob Michele, JPMorgan's fixed-income chief, have also highlighted the mounting pressure on household finances. However, robust economic growth, historically low unemployment, and resilient corporate earnings suggest consumers are still in fairly good shape.