The Pass-Through

At 2:00 p.m. on September 16th, the Federal Open Market Committee raised the federal funds rate a quarter point to a target range of 3.75 to 4.00 percent. The vote was twelve to zero. It was the first hike since July 2023.

Most people read that headline, felt a small flicker of something, and went back to work.

That is a mistake, and not for the reason you think. The mistake is not that a quarter point is going to wreck you. It will not. The mistake is that a rate change does not hit your life all at once. It arrives in pieces, on a schedule, through different doors, and the doors open at wildly different speeds.

Your debt reprices in weeks. Your savings reprice in months, if your bank feels like it.

That gap is the whole game. It is called pass-through, and it is the least discussed and most exploitable thing about a rate move. Today I am going to show you exactly how to map it across your own accounts and what to do in the window before it closes.

Here is the thing banks do not advertise.

When the Fed raises rates, the prime rate moves the same day. Prime is just the upper bound of the fed funds target plus three points, so prime went from 6.75 percent to 7.00 percent on Wednesday afternoon. Every product priced off prime followed automatically. Nobody had to approve anything. Nobody sent you a letter. It just happened.

Your credit card APR is prime plus a margin. Your home equity line is prime plus a margin. Your margin loan, your variable student loan, your business line of credit. All of them moved. You will see it in one to two billing cycles, which means your October or November statement.

Now the other side. Your high yield savings account is not priced off prime. It is priced off whatever your bank decides it needs to pay to keep your deposits. That number is set by a committee, and that committee has exactly one incentive, which is to pay you as little as possible for as long as possible.

Economists call this deposit beta. It is the share of a rate move that actually reaches the saver. In a hiking cycle, deposit beta typically runs somewhere between 30 and 60 percent, and it shows up on a lag of three to nine months. Online banks move faster because deposits are their entire business model. Big branch banks move slowest, sometimes never.

So the scoreboard after Wednesday looks like this. Your borrowing costs went up 25 basis points, effective roughly now. Your savings yield went up somewhere between zero and 15 basis points, effective sometime before spring, maybe.

That is not a conspiracy. It is just how the plumbing works. But if you know how the plumbing works, you can stand in the right place.

Before you touch anything, you need to see the whole board. This takes about 45 minutes and you will only ever do it once, because after this you just maintain it.

Open a blank sheet. Two sections. Things you pay. Things you get paid.

For every single line, capture five columns:

The account. Card, line, loan, deposit, whatever it is.

The balance. What is actually sitting there right now, not the limit.

The current rate. The real one, from the statement, not the one you remember from when you opened it.

Fixed or floating. Be honest here. A lot of things people call fixed are not. A 5/1 ARM is fixed until it is violently not. A promotional zero percent balance transfer is fixed until the promo window closes, and then it is whatever the back of the agreement says.

The reset mechanism. This is the column everyone skips and it is the only one that matters. Write down what the rate is tied to and how often it can change. Prime plus 12.99, adjusts monthly. Prime plus 2, adjusts at the start of each billing cycle. SOFR plus 3, adjusts annually in March. Bank discretion, no schedule.

When you fill in that last column, something useful happens. Your accounts sort themselves into three buckets without you deciding anything.

Bucket one, instant. Anything prime linked. This repriced Wednesday and you will feel it in 30 to 60 days.

Bucket two, delayed. Anything on an annual or periodic adjustment. An ARM that adjusts in March 2027 has already had this hike baked into its future, you just have not met it yet.

Bucket three, frozen. Your fixed mortgage. Your fixed auto loan. CDs you already own. Treasuries you plan to hold to maturity. These did not move and will not move. They are, for the moment, the best assets or the worst liabilities you own, depending on which side of the ledger they sit on.

That third bucket is where most people get confused. A 3.1 percent mortgage from 2021 is not a debt in this environment. It is a position. You are short money at a rate you will never see again. Treat it accordingly, which mostly means do not pay it off early while cash yields more than it costs you.

Here is where I want to slow you down, because this is where people make the actual error.

A quarter point on a 50,000-dollar home equity line is 125 dollars a year. About ten bucks a month. If you look at that number in isolation you will correctly conclude that it does not matter, close the spreadsheet, and go on with your life.

Do not look at it in isolation.

Sixteen of the eighteen officials on the committee projected at least one more hike before the end of the year, and four of them see two more as possible. The next decision lands October 28th. Markets went from pricing a 40 percent chance of an October follow-on to a 49 percent chance within an hour of the press conference.

So the question is not what a quarter point costs you. The question is what three quarters of a point costs you, because that is the path being priced, and your floating debt has no opinion about whether you saw it coming.

Three quarters of a point on that same line is 375 dollars a year. On a 200,000-dollar line during a renovation draw, it is 1,500 dollars a year. Now we are talking about a real number, and more importantly, a number you can do something about while the door is still open.

The discipline here is simple. When you evaluate floating rate exposure, always run it at the current rate and at current plus 75 basis points. If the second number makes you uncomfortable, you are not looking at a rate problem. You are looking at a structure problem, and structure is fixable.

Here is what to actually do, in order, before your October statements close.

Pull up every prime linked account and figure out the margin. Your card statement will say something like "your APR is 24.24 percent, which is the prime rate plus 17.24 percent." That 17.24 is your margin. It is the price of your credit profile as the bank assessed it, possibly years ago.

Margins are not carved in stone. If your credit has materially improved since origination, a call asking for an APR reduction works more often than people expect, particularly on cards you have carried for years with clean payment history. It is a ten minute call. Worst case they say no and nothing happens.

The standard advice is to pay the highest rate first. In a rising environment, add a second sort key: floating before fixed at similar rates.

A floating balance at 9 percent and a fixed balance at 9.5 percent are not the same liability. One of them has a ceiling. The other has a trajectory. If the committee delivers what it is projecting, the floating balance is a 9.75 percent balance by January and you never agreed to that.

Most home equity lines written in the last decade include a fixed rate lock feature. You can carve off part of your outstanding balance, convert it to a fixed rate installment piece, and leave the rest floating. Most people have never read this clause and most lenders never bring it up.

If you are carrying a meaningful draw on a HELOC and you expect to carry it through next year, this is the single highest leverage call you can make this month. Ask specifically for the fixed rate conversion option, ask what rate applies, ask whether there is a conversion fee, and ask how many conversions you are allowed.

Do not go chasing the top of a rate table today. Deposit rates have not finished moving and the leaderboard will look different in December.

Instead, run a test. Write down your current savings APY today. Check it again on October 15th. Check it again on November 15th. If your bank has not moved by the second check, you have your answer about where you rank in their priorities, and you can move deliberately rather than reactively.

This is the one I am most worried about people getting wrong right now.

When rates rise, long CDs start to look delicious. Five year paper at 4 percent feels like locking in a win. But if the committee is telling you it expects to keep going, locking a five year rate at the start of a hiking path is how you end up watching a money market fund out-earn your CD for three years while you eat an early withdrawal penalty to escape.

Keep your cash short until the path flattens. Short paper, money market funds, Treasury bills. You give up a little yield today to keep the right to reprice, and in a rising environment the right to reprice is worth more than the spread.

The reason this ledger goes stale is that maintaining it is boring. So do not maintain it by hand.

I run a simple scenario in Make.com that checks a handful of rate pages on the first of each month, drops the numbers into the same sheet as my ledger, and sends me one message if anything moved more than ten basis points. It took an afternoon to build and it has replaced a recurring task I used to skip four months out of five.

For the policy side, I paste the new FOMC statement and the prior one into Galaxy.ai and ask for a plain diff of what language changed. The statement is written to be boring on purpose. The changes are where the information is, and they take about 90 seconds to surface when you stop reading and start comparing.

I want to be straight with you about the size of the prize, because I am not going to pretend this is life changing money for most people.

Run the six moves and a typical household with a card balance, a home equity line, and 60,000 dollars in cash is looking at somewhere between 600 and 2,000 dollars over the next year. Real money, not retirement money.

But that is not the point. The point is that you now have a ledger that tells you, in one glance, what happens to your life every time nine people in a room in Washington change a number. Most people experience monetary policy as weather. You are about to experience it as a schedule.

That is the difference between having money and running money.

Want the ledger built for you?

I put together the Pass-Through Ledger as a done-for-you workbook. It includes the five column tracker pre-formatted, the three bucket sorting logic built in, a floating rate stress calculator that runs your exposure at current plus 75 basis points automatically, the HELOC fixed rate conversion call script, the APR reduction call script, and the Make.com scenario blueprint from move six.

Reply to this email with the word REPRICE and I will send it over.

One more thing.

We opened The Grid Inner Circle a few weeks ago and the response has been better than I expected. It is the paid community side of this newsletter, where the weekly issues turn into actual implementation. Live teardowns, the full system library, direct access to me, and a room full of operators who are running the same playbooks you are reading about.

It runs 29 dollars a month. There is also a lifetime seat at 499 dollars, which we are keeping open while the room is still small enough for me to answer everybody personally.

If you have been reading for a while and implementing none of it, the room is the fix. That is not a sales line, it is just what happens when you put your numbers in front of people who will ask about them next week.

Reply with the word CIRCLE and I will send you the details.

See you Wednesday.

Alex Rivera, Wealth Architect at Wealth Grid