The Consumer Spending Response to Mortgage Resets
The Great Recession brought to the forefront many unanswered questions about how monetary policy plays out at a microeconomic level, notably the question of how changes in the federal funds target rate impact personal consumption for individual households. Not surprisingly, this question is difficult to answer because of the multitude and variety of financing products and constantly evolving market conditions, as well as the paucity of data integrating financing terms with consumption at the household level over time.
In this new JPMorgan Chase Institute report, “The Consumer Spending Response to Mortgage Resets: Microdata on Monetary Policy”, we examine a sample of US homeowners who hold a specific type of mortgage particularly sensitive to interest rate changes to help answer this question. Using a de-identified sample of Chase customers who had an adjustable-rate mortgage and a Chase credit card, we measure changes in spending leading up to and after reset. We also analyze the variation in the size of the mortgage payment decrease, the use of credit cards as a liquidity source, and the types of goods and services purchased. Our analysis further highlights how housing policy that influences the share of fixed-rate mortgages versus variable-rate mortgages can impact the overall effectiveness of monetary policy.