Transcription
Currently, the unemployment rate in America is hovering at 4.2%.
>> Hmm, that's considered low.
>> Yes, at first glance, it sounds like the economy is doing well, and everyone should have a stable life with jobs.
>> Uh-huh.
>> However, the reality hidden beneath those numbers is completely the opposite.
>> How so?
>> The same group of people are facing skyrocketing rates of loan defaults and repossessions. Credit card debt is also piling up to the point where many families can no longer afford to pay.
>> Wow, that sounds very concerning.
>> Yes, today we will delve into the data to understand why the seemingly good unemployment figures are masking the reality that macroeconomic policies are pushing employed individuals towards bankruptcy.
>> It's a very contradictory situation indeed. And the center of all this contradiction stems from the meeting room of the U.S. Federal Reserve, or the Fed, in July 2026.
>> Today, we have a wealth of interesting data to unravel this mystery, including reports from Fox Business, Indeed Hiring Lab, Trading Key, JP Morgan, Gman Sax, and the Fed's latest Monetary Policy Report from July 2026.
>> That's a lot of solid information for today.
>> Our goal today is to decode the macroeconomic economic language announced from Washington and make it relatable to our everyday lives.
>> Hmm, yes.
>> So that everyone can clearly see why the interest rate decisions of a small group of people can have such a severe impact on the credit card bills and car payments of ordinary people.
>> So, shall we start with the Fed's latest decision?
>> Please do.
>> The Federal Open Market Committee, or FOMC, voted 9-3 to keep the policy interest rate at 3.5-3.75%.
>> Wait, there were three dissenting votes?
>> Yes, it reflects considerable internal tension.
>> Who were the dissenting voters?
>> It included the presidents of the Cleveland and Minneapolis Fed branches, Ms. Newcashari, and the Dallas Fed branch president, Mr. Larry Loen. All three voted against the majority.
>> Did they want to lower interest rates, or what?
>> No, quite the opposite. They wanted to raise interest rates by another 25 basis points.
>> Wow, they wanted to raise them further?
>> Yes, in simple terms, they wanted to add another 0.25% to the interest rate, while the majority wanted to keep it as is.
>> That must have been a heated meeting.
>> However, Kevin Watch, the new Fed chair, called this split vote a mere "healthy family debate."
>> "Healthy family debate" sounds very soft.
>> What's remarkable about this is the Fed chair's stance, which clearly indicates that their current focus is solely on combating inflation as their number one priority.
>> And what about the labor market? Aren't they concerned about that anymore?
>> It has become a supporting actor, its importance diminished.
>> Uh-huh.
>> The report states that inflation remains above the 2% target. The main reason is not excessive consumer spending.
>> Then what is it from?
>> It's from structural and external factors, such as the conflict in the Middle East, which causes energy prices to fluctuate.
>> Oh, the expensive oil issue.
>> Yes, and the impact of import tariff policies, or tariffs.
>> Hmm, yes.
>> Including the massive demand for resources in the AI industry. These are the factors driving up prices.
>> So, it's almost entirely from external factors.
>> Exactly. Therefore, the Fed chair chose to abandon forward guidance.
>> Alright, let me elaborate on this. Abandoning forward guidance means the Fed will no longer signal to the market in advance what it will do in the future, correct?
>> Yes, like, "Next month, I might lower or raise, I won't tell you anymore."
>> So, this means they want maximum flexibility.
>> Exactly. To bring inflation down to the 2% target without being bound by any promises. They want the freedom to make month-to-month decisions based on the latest data.
>> But the point is, the latest data is starting to send warning signals.
>> Uh-huh. How so?
>> For example, data from Indeed Hiring Lab, which we've compiled, indicates that the previously hot labor market is starting to cool down. Job creation figures for the spring season were down by 74,000 positions from the initial report.
>> Wow, that's a significant number of jobs lost.
>> Yes, and at the same time, the Consumer Price Index, or CPI, for June has also started to decrease. The headline CPI decreased by 0.42%.
>> Uh-huh.
>> And the core CPI, which excludes food and energy prices, decreased by 0.02%.
>> Oh, if inflation is starting to decrease and fewer people are getting jobs, why do three committee members still want to raise interest rates?
>> I wonder about that too. It's like this situation. Let's imagine inflation is a wildfire.
>> Yes.
>> And the Fed is using a high-pressure water hose, which is raising interest rates, to put out that fire.
>> That's a very vivid comparison. Now, we're starting to see the fire subside, and the ground is getting wet, to the point where the trees, which represent the labor market, are about to drown.
>> The roots are rotting.
>> Yes, but the Fed refuses to turn off the water, and some even want to increase the water pressure.
>> That's right. Why do they want to increase the water pressure?
>> Because they are afraid of a gust of wind.
>> A gust of wind?
>> Yes. Even though the wildfire seems to be subsiding based on the latest CPI figures, uncontrollable factors like the war in the Middle East, which could cause oil prices to surge, or various tariff policies...
>> Uh-huh.
>> ...are like strong gusts of wind that can easily reignite the small embers hidden beneath the ground into a large wildfire overnight.
>> Oh, I understand.
>> So, the Fed has to hold onto this water, keep the hose at the same pressure, or even increase it for certainty, even if the surrounding economy is getting soaked and starting to suffer damage.
>> And what does all this mean for our credit card bills and wallets? How does the impact of high-pressure water or frozen high interest rates reach ordinary people?
>> It impacts them fully. Data from the Fed's Monetary Policy Report clearly states that household spending growth has slowed significantly, down to just 1.3% in the first five months of 2026.
>> That's a huge drop.
>> The reason is that disposable income has decreased. People have to use their money to pay for fuel and bear the burden of more expensive imported goods due to tariffs.
>> Yes.
>> Furthermore, the saving rate has plummeted to 3.9%, which is already lower than the pre-COVID period.
>> That 3.9% saving rate is a red-level danger signal.
>> Is it that scary?
>> If we connect this to the overall picture, imagine that as inflation remains sticky, basic living costs like food, energy, or insurance continue to rise every day.
>> They keep getting more expensive lately.
>> Yes, but incomes are not growing accordingly. What happens is that savings dwindle until households have no other choice but to pull out their credit cards.
>> To buy everyday necessities.
>> Yes, to buy basic necessities. Or sometimes, to cover the shortfall at the end of the month. However, in this era, using credit cards means facing high interest rates on debt, following the Fed's policy of frozen interest rates.
>> Oh, they're hit twice.
>> The report states that borrowing costs have increased significantly. Interest rates on car loans are now much higher than in 2019.
>> Alright, let's break this down. It's a situation where people are being squeezed from both sides, right? On one hand, the cost of living forces them to borrow.
>> Yes.
>> On the other hand, there are exorbitant interest rates waiting to pounce when they borrow.
>> Exactly. They are squeezed to the point of suffocation.
>> But let me delve deeper. If we go back to the unemployment rate of 4.2% at the beginning of the program.
>> Uh-huh.
>> Which the Fed considers a relatively balanced labor market, where most people have jobs and regular salaries. Then why does the data show a surprisingly high increase in car loan defaults?
>> Hmm, that's worth thinking about.
>> Especially among low to middle-income earners. Having a job should mean being able to afford car payments, right? Or is the employment data masking something?
>> It's like this: having a job doesn't always mean having purchasing power.
>> Oh, how so?
>> This is the trap of large statistical figures. Although the employment figures appear stable, we need to look at real wage growth.
>> Real wages mean subtracting inflation from salary, right?
>> Yes. It means taking the increase in salary and subtracting the inflation rate. For lower to middle-income households, their real wages might even be negative.
>> Meaning prices are rising faster than salaries.
>> Exactly. When savings are only 3.9%, as mentioned, it means they have no cushion or buffer.
>> No emergency savings.
>> Yes. Suppose a small emergency occurs, like a burst water pipe at home or a child suddenly needing hospitalization. What should they do?
>> They have to use their credit card.
>> Use their credit card and face high interest.
>> Yes. And with interest compounding, that debt will grow very quickly. Ultimately, their salary will be entirely used to pay just the credit card interest, leaving nothing for car payments.
>> Wow, I feel tired just listening to it. It turns out that the employment figures are indeed covering up the financial cracks in households.
>> Exactly.
>> And it doesn't just affect ordinary people. The reports we've reviewed also indicate that small businesses are seeing their revolving credit card debt surge as well.
>> It's the same mechanism.
>> How so? When the Fed keeps interest rates high, commercial banks become more stringent in lending. Small businesses with short cash flow that cannot secure large loans from banks or cannot afford the interest rates have to turn to business credit cards.
>> To cover payroll, rent, etc.?
>> Yes. And business credit card interest rates are equally brutal. It's a cycle of extending lifelines at a high cost.
>> Yes. Now, if short-term loans like credit cards and car loans are in such dire straits, let's move on to long-term decisions like buying a house.
>> Hmm, the housing market is also interesting.
>> The report clearly indicates that residential investment decreased in the first quarter, and second-hand home sales remain sluggish.
>> Uh-huh.
>> The 30-year fixed-rate mortgage interest rate has now soared to 6.4%.
>> The housing market is the most visible area where the impact of frozen interest rate policies is felt in the economy.
>> How so? Why is it the most visible?
>> Below 4%.
>> Below 4%, which was the rate obtained before.
>> Yes, before the Fed started raising interest rates rapidly.
>> And this is where it gets interesting. The "lock-in" phenomenon. The mechanism can be easily explained.
>> How?
>> It's like you have a golden ticket to watch a movie in a particular theater. The problem is, the theater's air conditioning is freezing, and the movie isn't enjoyable. You're so uncomfortable that you desperately want to leave and watch another movie.
>> Yes.
>> But the theater's rule is that if you step out of this theater, the new ticket for the next theater you have to buy will be almost twice as expensive.
>> Wow, that's outrageous.
>> Yes. And what's the consequence? Everyone chooses to sit there, hugging themselves, enduring the cold and discomfort in the same theater. No one wants to leave.
>> That's true. Who would want to pay almost twice as much?
>> It's the same in the real estate market. People who want to expand their families because their children are growing up, or want to move to another city for work, are reluctant to sell their old homes. Because if they sell and buy a new home, they'll face interest rates of 6.4% instead of the 3-4% they were paying. The second-hand housing market is thus frozen, with no supply coming out. This movie theater analogy explains the mechanism very comprehensively. And this raises an important question: where will the impact of no one wanting to leave the theater end?
>> Will it just end with people not buying new homes?
>> Not at all. It doesn't just end with people wanting to buy or sell homes, but it causes severe structural damage to the overall economy.
>> To the overall economy?
>> Yes. Firstly, it restricts labor mobility.
>> Oh, moving for work.
>> Yes. Suppose an engineer in Ohio receives a new job offer in Texas with a 20% salary increase. Normally, they should move, right? So that the economic system can allocate skilled individuals to where they can create the highest value.
>> Yes, a 20% salary increase, who wouldn't want to move?
>> But when they sit down and calculate that selling their home in Ohio, which they are currently paying off at a 3.5% rate, to buy a new home in Texas at a 6.4% rate, their monthly expenses will surge higher than the increased salary.
>> Wow, so they end up moving for a job and becoming poorer.
>> Yes. Ultimately, they have to refuse the offer.
>> The economy thus loses efficiency because human resources cannot move.
>> Exactly. Furthermore, it has a domino effect on other business sectors.
>> There's more?
>> Yes. When people don't move, the construction industry, home renovation contractors, furniture stores, moving companies, and even real estate agents all suffer from a lack of income. The entire supply chain related to housing comes to a standstill.
>> So, everything collapses. Hearing this, I believe everyone following us is asking the same question: when will this sky-high interest rate policy end? When will the pressure on households finally ease?
>> That's the question everyone wants to know the answer to the most.
>> Let's look at the forecasts from experts and the capital markets. Starting with what's called the Dot Plot.
>> For those who might not be familiar, the Dot Plot is a chart where each Fed committee member indicates their opinion on what the policy interest rate should be at various future points in time. It's like a tool the market uses to gauge the Fed's direction.
>> Yes. The latest data from Trading Key shows that Fed committee members have raised the median forecast for the 2026 interest rate to 3.8%.
>> Hmm, raised it further?
>> Yes. This can be easily interpreted as they anticipate fewer interest rate cuts than initially promised or forecast.
>> It aligns perfectly and might even be more pessimistic.
>> More pessimistic how?
>> Goldman Sachs estimates that the Fed is unlikely to cut interest rates at all this year. They analyze that the Fed will not dare to make a move until they see a genuine easing of the impact from tariffs, oil prices, and the influx of capital into the AI industry.
>> But we might not see any interest rate cuts this year.
>> There's a high probability. Although they expect the end of the interest rate cycle, or the terminal rate, to be around 3-3.25% by the end of the year.
>> Yes.
>> But Goldman Sachs also warns that the chance of the Fed reversing course and raising interest rates again is higher than the market initially estimated.
>> Wow, that's chilling. The forecast from JP Morgan, which we've compiled, is even more aggressive. Do you know what they say?
>> What do they say?
>> They believe the Fed will keep interest rates high until the end of 2026 and might even raise them by another 25 basis points in September 2027.
>> Wow, all the way to 2027, and they might even raise them further.
>> Furthermore, Fed Chair Kevin Wallage has just ordered the establishment of five task forces to review the entire policy-making process. Setting up committees to study like this means that all processes will take time, and there will be no sudden policy shifts or interest rate cuts.
>> These financial institutions are looking at this high-interest rate environment as the new normal for the global economy.
>> New normal?
>> Yes. The decade we were accustomed to near-zero interest rates is over. And for the Fed to bring down the core inflation rate, Core PCE, which is the metric the Fed uses most often.
>> Why do they prefer this metric?
>> Because it reflects actual consumer spending. And this figure is currently at 3.3%. Bringing it back down to exactly 2% is a mission that requires extreme economic harshness.
>> They have to make it hurt to end it, is that it? If JP Morgan's forecast is correct, and we have to live with this situation until late 2027.
>> Yes.
>> How long can consumer spending, the lifeblood of the economy, withstand this burden, given that statistics show savings are only at 3.x% and credit cards are almost maxed out?
>> That's right.
>> It's like we're telling people to keep holding their breath and diving, even though their oxygen tanks are running out.
>> This is the most vulnerable point of this policy. The Fed is playing a game of nerves. They are betting that the labor market, where people are still employed, can sustain most households through this period of extremely high interest rates without the economy collapsing.
>> Hoping people are resilient enough. Yes, they want to keep the economy growing slowly, with people not having enough purchasing power to stimulate price increases and thus kill inflation.
>> To summarize all the data we've discussed: the Fed's decision to keep interest rates at 3.5% to 3.75% is not just an economic figure in a distant newspaper.
>> Yes, it's much closer than you think.
>> It's a massive mechanism intentionally designed to cool down the macroeconomic economy. And that intense cold is turning into a blizzard that is piercing through and freezing the wallets of ordinary people. It's the reason credit card bills are piling up, car payments are becoming a heavy burden, and the housing market is locked down.
>> Understanding these mechanisms is crucial because it tells us that the financial strain we are facing is not solely due to our personal mistakes, but is a result of deliberate policy structures that we may have to live with for a considerable time.
>> Yes. Before we wrap up, there's another point that emerged from the Goldman Sachs report about the factors driving inflation, which I'd like to leave everyone with to ponder.
>> Which point?
>> One of the key culprits is the demand in the AI industry.
>> Oh, the AI issue.
>> Yes. We tend to have the image that AI is a future technology that will help reduce costs, increase efficiency, and ultimately make goods or services cheaper, right?
>> Yes, everyone says that. AI will help with labor.
>> But current data reflects the opposite. Imagine, to build the world of AI today, giant corporations have to raise massive capital, hoard processors, build enormous data centers, and consume vast amounts of electricity, right?
>> Exactly. This enormous demand for resources is what drives up the prices of basic commodities and energy in the global market, becoming a major driver of inflation.
>> Wow, that makes a lot of sense.
>> And when it fuels inflation, it forces central banks to keep interest rates high to curb that inflation. Is it possible that ordinary working people, who are gritting their teeth to pay 25% credit card interest.
>> Uh-huh.
>> And have to pay high car loan interest to cool down the economy today, are unknowingly paying the bills or subsidizing the golden age of AI development?
>> Wow, that's a perspective I've never considered.
>> This is what I'd like to leave you with as food for thought. Sometimes, advanced technology comes with an unseen price.
>> That's a point that very accurately prompts questions about the economic structure in the age of technology.
>> Our in-depth data analysis for today has covered all the key points. We hope that this journey through the data and figures will help everyone understand the hidden mechanisms behind their monthly expenses more clearly.
>> And we hope everyone will be better prepared to face these economic storms.
>> Thank you all for following us. Join us again for more in-depth data analysis in the next episode. Goodbye. Goodbye.