GDP looks solid. Savings are higher, but home sales are lower. So why keep rates high?

Today had the third and final short-term revisions for 2nd Quarter GDP in 2023, and not much news out of that.

Headline Q2 GDP unrevised at +2.1% annualized. Some movement beneath the surface, though: Consumption revised down, investment revised up.
Gross domestic income revised up two tenths to +0.7%.https://t.co/5yloav17qb

— Ben Casselman (@bencasselman) September 28, 2023

But while the 2nd quarter numbers didn't change much, and shouldn't change our evaluations of where things are, the bigger story to me is that the GDP report also included revisions to past years. And in particular, look at the positive revisions to income and savings.

Current-dollar personal income is now estimated to have increased $369.8 billion in the first quarter [of 2023], an upward revision of $91.9 billion from the previous estimate. The revision primarily reflected an upward revision to compensation (led by private wages and salaries).

Disposable personal income increased $701.8 billion, or 15.5 percent, in the first quarter, an upward revision of $113.9 billion from the previous estimate. Real disposable personal income increased 10.8 percent, an upward revision of 2.3 percentage points.

Personal saving was $948.2 billion in the first quarter, an upward revision in change of $132.9 billion. The personal saving rate—personal saving as a percentage of disposable personal income—was 4.8 percent in the first quarter, an upward revision of 0.5 percentage point.

That means that real wage growth was better than we knew at the start of the year, and that American consumers were saving more in a time of higher interest rates. These are things that the Federal Reserve allegedly should welcome, as higher savings rates lessen the threat of inflation. At the same time, the 1st Quarter gross domestic purchases price index was revised down to 3.6% from the originally-reported 3.8%. And then Q2's inflation got lower than that.

Yet the Fed looks at this, and continues to think they have to keep interest rates at a multi-decade high. And now we are starting to see that home-buying activity is getting frozen, as people don't want to take on higher interest rates to borrow for a house.

Pending home sales come in well below consensus expectations, declining 7.1% in August 2023, with all 4regions of the U.S. posting month-over-month and year-over-year declines in transactions. Pending Home Sales Index generally leads Existing-Home Sales by a month or two...(2/n) pic.twitter.com/SxYdA1XMAV

— Odeta Kushi (@odetakushi) September 28, 2023

But jobless claims are back down to their lowest levels since February, and if the Fed actually cared about the Main Street economy, they'd realize that inflation isn't a threat now, the economy is in good balance, and they'd lower interest rates back into a balanced state as well.

And start it sooner than later, before the high interest rates turn our leveling off of spending into a straight-up decline that translates into job losses.