With the economy humming along and the stock market, despite some recent twists and turns, hanging in there pretty well, it’s a tough case to sell that higher interest rates are having a substantially negative impact on the economy.

So what if policymakers just decide to keep rates where they are for even longer, and go through all of 2024 without cutting?

It’s a question that, despite the current conditions, makes Wall Street shudder and Main Street queasy as well.

“When rates start climbing higher, there has to be an adjustment,” said Quincy Krosby, chief global strategist at LPL Financial. “The calculus has changed. So the question is, are we going to have issues if rates remain higher for longer?”

The higher-for-longer stance was not what investors were expecting at the beginning of 2024, but it’s what they have to deal with now as inflation has proven stickier than expected, hovering around 3% compared with the Federal Reserve’s 2% target.

Recent statements by Fed Chair Jerome Powell and other policymakers have cemented the notion that rate cuts aren’t coming in the next several months. In fact, there even has been talk about the potential for an additional hike or two ahead if inflation doesn’t ease further.

That leaves big questions over when exactly monetary policy easing will come, and what the central bank’s position to remain on hold will do to both financial markets and the broader economy.

Krosby said some of those answers will come soon as the current earnings season heats up. Corporate officers will provide key details beyond sales and profits, including the impact that interest rates are having on profit margins and consumer behavior.

“If there’s any sense that companies have to start cutting back costs and that leads to labor market trouble, this is the path of a potential problem with rates this high,” Krosby said.

But financial markets, despite a recent 5.5% sell-off for the S&P 500, have largely held up amid the higher-rate landscape. The broad market, large-cap index is still up 6.3% year to date in the face of a Fed on hold, and 23% above the late October 2023 low.

History tells differing stories about the consequences of a hawkish Fed, both for markets and the economy.

Higher rates are generally a good thing so long as they’re associated with growth. The last period when that wasn’t true was when then-Fed Chair Paul Volcker strangled inflation with aggressive hikes that ultimately and purposely tipped the economy into recession.

There is little precedent for the Fed to cut rates in robust growth periods such as the present, with gross domestic product expected to accelerate at a 2.4% annualized pace in the first quarter of 2024, which would mark the seventh consecutive quarter of growth better than 2%. Preliminary first-quarter GDP numbers are due to be reported Thursday.

For the past several decades, higher rates have not been linked to recessions.

On the contrary, Fed chairs have often been faulted for keeping rates too low for too long, leading to the dot-com bubble and subprime market implosions that triggered two of the three recessions this century. In the other one, the Fed’s benchmark funds rate was at just 1% when the Covid-induced downturn occurred.

In fact, there are arguments that too much is made of Fed policy and its broader impact on the $27.4 trillion U.S. economy.

“I don’t think that active monetary policy really moves the economy nearly as much as the Federal Reserve thinks it does,” said David Kelly, chief global strategist at J.P. Morgan Asset Management.

Kelly points out that the Fed, in the 11-year run between the financial crisis and the Covid pandemic, tried to bring inflation up to 2% using monetary policy and mostly failed. Over the past year, the pullback in the inflation rate has coincided with tighter monetary policy, but Kelly doubts the Fed had much to do with it.

Other economists have made a similar case, namely that the main issue that monetary policy influences — demand — has remained robust, while the supply issue that largely operates outside the reach of interest rates has been the principle driver behind decelerating inflation.

Where rates do matter, Kelly said, is in financial markets, which in turn can affect economic conditions.

“Rates too high or too low distort financial markets. That ultimately undermines the productive capacity of the economy in the long run and can lead to bubbles, which destabilizes the economy,” he said.

“It’s not that I think they’ve set rates at the wrong level for the economy,” he added. “I do think the rates are too high for financial markets, and they ought to try to get back to normal levels — not low levels, normal levels — and keep them there.”

As a matter of policy, Kelly said that would translate into three quarter-percentage point rate cuts this year and next, taking the fed funds rate down to a range of 3.75%-4%. That’s about in line with the 3.9% rate at the end of 2025 that Federal Open Market Committee members penciled in last month as part of their “dot-plot” projections.

Futures market pricing implies a fed funds rate of 4.32% by December 2025, indicating a higher rate trajectory.

While Kelly is advocating for “a gradual normalization of policy,” he does think the economy and markets can withstand a permanently higher level of rates.

In fact, he expects the Fed’s current projection of a “neutral” rate at 2.6% is unrealistic, an idea that is gaining traction on Wall Street. Goldman Sachs, for instance, recently has opined that the neutral rate — neither stimulative nor restrictive — could be as high as 3.5%. Cleveland Fed President Loretta Mester also recently said it’s possible that the long-run neutral rate is higher.

That leaves expectations for Fed policy tilting toward cutting rates somewhat but not going back to the near-zero rates that prevailed in the years after the financial crisis.

In fact, over the long run, the fed funds rate going back to 1954 has averaged 4.6%, even given the extended seven-year run of near-zero rates after the 2008 crisis until 2015.

One thing that has changed dramatically, though, over the decades has been the state of public finances.

The $34.6 trillion national debt has exploded since Covid hit in March 2020, rising by nearly 50%. The federal government is on track to run a $2 trillion budget deficit in fiscal 2024, with net interest payments thanks to those higher interest rates on pace to surpass $800 billion.

The deficit as a share of GDP in 2023 was 6.2%; by comparison, the European Union allows its members only 3%.

The fiscal largesse has juiced the economy enough to make the Fed’s higher rates less noticeable, a condition that could change in the days ahead if benchmark rates hold high, said Troy Ludtka, senior U.S. economist at SMBC Nikko Securities America.

“One of the reasons why we haven’t noticed this monetary tightening is simply a reflection of the fact that the U.S. government is running its most irresponsible fiscal policy in a generation,” Ludtka said. “We’re running massive deficits into a full-employment economy, and that’s really keeping things afloat.”

However, the higher rates have begun to take their toll on consumers, even if sales remain solid.

Credit card delinquency rates climbed to 3.1% at the end of 2023, the highest level in 12 years, according to Fed data. Ludtka said the higher rates are likely to result in a “retrenchment” for consumers and ultimately a “cliff effect” where the Fed ultimately will have to concede and lower rates.

“So, I don’t think they should be cutting anytime in the immediate future. But at some point that’s going to have to happen, because these interest rates are simply crushing particularly low-income-earning Americans,” he said. “That is a big portion of the population.”

Walmart’s majority-owned fintech startup One has begun offering buy now, pay later loans for big-ticket items at some of the retailer’s more than 4,600 U.S. stores, CNBC has learned.

The move puts One in direct competition with Affirm, the BNPL leader and exclusive provider of installment loans for Walmart customers since 2019. It’s a relationship that the Bentonville, Arkansas, retailer expanded recently, introducing Affirm as a payment option at Walmart self-checkout kiosks.

It also likely signals that a battle is brewing in the store aisles and ecommerce portals of America’s largest retailer. At stake is the role of a wide spectrum of players, from fintech firms to card companies and established banks.

One’s push into lending is the clearest sign yet of its ambition to become a financial superapp, a mobile one-stop shop for saving, spending and borrowing money.

Since it burst onto the scene in 2021, luring Goldman Sachs veteran Omer Ismail as CEO, the fintech startup has intrigued and threatened a financial landscape dominated by banks — and poached talent from more established lenders and payments firms.

But the company, based out of a cramped Manhattan WeWork space, has operated mostly in stealth mode while developing its early products, including a debit account released in 2022.

Now, One is going head-to-head with some of Walmart’s existing partners like Affirm who helped the retail giant generate $648 billion in revenue last year.

On a recent visit by CNBC to a New Jersey Walmart location, ads for both One and Affirm vied for attention among the Apple products and Android smartphones in the store’s electronics section.

Offerings from both One and Affirm were available at checkout, and loans from either provider were available for purchases starting at around $100 and costing as much as several thousand dollars at an annual interest rate of between 10% to 36%, according to their respective websites.

Electronics, jewelry, power tools and automotive accessories are eligible for the loans, while groceries, alcohol and weapons are not.

Buy now, pay later has gained popularity with consumers for everyday items as well as larger purchases. From January through March of this year, BNPL drove $19.2 billion in online spending, according to Adobe Analytics. That’s a 12% year-over-year increase.

Walmart and One declined to comment for this article.

One’s expanding role at Walmart raises the possibility that the company could force Affirm, Capital One and other third parties out of some of the most coveted partnerships in American retail, according to industry experts.

“I have to imagine the goal is to have all this stuff, whether it’s a credit card, buy now, pay later loans or remittances, to have it all unified in an app under a single brand, delivered online and through Walmart’s physical footprint,” said Jason Mikula, a consultant formerly employed at Goldman’s consumer division.

Affirm declined to comment about its Walmart partnership.

For Walmart, One is part of its broader effort to develop new revenue sources beyond its retail stores in areas including finance and health care, following rival Amazon’s playbook with cloud computing and streaming, among other segments. Walmart’s newer businesses have higher margins than retail and are a part of its plan to grow profits faster than sales.

In February, Walmart said it was buying TV maker Vizio for $2.3 billion to boost its advertising business, another growth area for the retailer.

When it comes to finance, One is just Walmart’s latest attempt to break into the banking business. Starting in the 1990s, Walmart made repeated efforts to enter the industry through direct ownership of a banking arm, each time getting blocked by lawmakers and industry groups concerned that a “Bank of Walmart” would crush small lenders and squeeze big ones.

To sidestep those concerns, Walmart adopted a more arms-length approach this time around. For One, the retailer created a joint venture with investment firm firm Ribbit Capital — known for backing fintech firms including Robinhood, Credit Karma and Affirm — and staffed the business with executives from across finance.

Walmart has not disclosed the size of its investment in One.

The startup has said that it makes decisions independent of Walmart, though its board includes Walmart U.S. CEO, John Furner, and its finance chief, John David Rainey.

One doesn’t have a banking license, but partners with Coastal Community Bank for the debit card and installment loans.

After its failed early attempts in banking, Walmart pursued a partnership strategy, teaming up with a constellation of providers, including Capital One, Synchrony, MoneyGram, Green Dot, and more recently, Affirm. Leaning on partners, the retailer opened thousands of physical MoneyCenter locations within its stores to offer check cashing, sending and receiving payments, and tax services.

But Walmart and One executives have made no secret of their ambition to become a major player in financial services by leapfrogging existing players with a clean-slate effort.

One’s no-fee approach is especially relevant to low- and middle-income Americans who are “underserved financially,” Rainey, a former PayPal executive, noted during a December conference.

“We see a lot of that customer demographic, so I think it gives us the ability to participate in this space in maybe a way that others don’t,” Rainey said. “We can digitize a lot of the services that we do physically today. One is the platform for that.”

One could generate roughly $1.6 billion in annual revenue from debit cards and lending in the near term, and more than $4 billion if it expands into investing and other areas, according to Morgan Stanley.

Walmart can use its scale to grow One in other ways. It is the largest private employer in the U.S. with about 1.6 million employees, and it already offers its workers early access to wages if they sign up for a corporate version of One.

There are signs that One is making a deeper push into lending beyond installment loans.

Walmart recently prevailed in a legal dispute with Capital One, allowing the retailer to end its credit-card partnership years ahead of schedule. Walmart sued Capital One last year, alleging that its exclusive partnership with the card issuer was void after it failed to live up to contractual obligations around customer service, assertions that Capital One denied.

The lawsuit led to speculation that Walmart intends to have One take over management of the retailer’s co-branded and store cards. In fact, in legal filings Capital One itself alleged that Walmart’s rationale was less about servicing complaints and more about moving transactions to a company it owns.

“Upon information and belief, Walmart intends to offer its branded credit cards through One in the future,” Capital One said last year in response to Walmart’s suit. “With One, Walmart is positioning itself to compete directly with Capital One to provide credit and payment products to Walmart customers.”

Capital One said last month that it could appeal the decision. The company declined to comment further.

Meanwhile, Walmart said last year when its lawsuit became public that it would soon announce a new credit card option with “meaningful benefits and rewards.”

One has obtained lending licenses that allow it to operate in nearly every U.S. state, according to filings and its website. The company’s app tells users that credit building and credit score monitoring services are coming soon.

And while One’s expansion threatens to supersede Walmart’s existing financial partners, Walmart’s efforts could also be seen as defensive.

Fintech players including Block’s Cash App, PayPal and Chime dominate account growth among people who switch bank accounts and have made inroads with Walmart’s core demographic. The three services made up 60% of digital player signups last year, according to data and consultancy firm Curinos.

But One has the advantage of being majority owned by a company whose customers make more than 200 million visits a week.

It can offer them enticements including 3% cashback on Walmart purchases and a savings account that pays 5% interest annually, far higher than most banks, according to customer emails from One.

Those terms keep customers spending and saving within the Walmart ecosystem and helps the retailer better understand them, Morgan Stanley analysts said in a 2022 research note.

“One has access to Walmart’s sizable and sticky customer base, the largest in retail,” the analysts wrote. “This captive and underserved customer base gives One a leg up vs. other fintechs.”

With the economy humming along and the stock market, despite some recent twists and turns, hanging in there pretty well, it’s a tough case to sell that higher interest rates are having a substantially negative impact on the economy.

So what if policymakers just decide to keep rates where they are for even longer, and go through all of 2024 without cutting?

It’s a question that, despite the current conditions, makes Wall Street shudder and Main Street queasy as well.

“When rates start climbing higher, there has to be an adjustment,” said Quincy Krosby, chief global strategist at LPL Financial. “The calculus has changed. So the question is, are we going to have issues if rates remain higher for longer?”

The higher-for-longer stance was not what investors were expecting at the beginning of 2024, but it’s what they have to deal with now as inflation has proven stickier than expected, hovering around 3% compared with the Federal Reserve’s 2% target.

Recent statements by Fed Chair Jerome Powell and other policymakers have cemented the notion that rate cuts aren’t coming in the next several months. In fact, there even has been talk about the potential for an additional hike or two ahead if inflation doesn’t ease further.

That leaves big questions over when exactly monetary policy easing will come, and what the central bank’s position to remain on hold will do to both financial markets and the broader economy.

Krosby said some of those answers will come soon as the current earnings season heats up. Corporate officers will provide key details beyond sales and profits, including the impact that interest rates are having on profit margins and consumer behavior.

“If there’s any sense that companies have to start cutting back costs and that leads to labor market trouble, this is the path of a potential problem with rates this high,” Krosby said.

But financial markets, despite a recent 5.5% sell-off for the S&P 500, have largely held up amid the higher-rate landscape. The broad market, large-cap index is still up 6.3% year to date in the face of a Fed on hold, and 23% above the late October 2023 low.

History tells differing stories about the consequences of a hawkish Fed, both for markets and the economy.

Higher rates are generally a good thing so long as they’re associated with growth. The last period when that wasn’t true was when then-Fed Chair Paul Volcker strangled inflation with aggressive hikes that ultimately and purposely tipped the economy into recession.

There is little precedent for the Fed to cut rates in robust growth periods such as the present, with gross domestic product expected to accelerate at a 2.4% annualized pace in the first quarter of 2024, which would mark the seventh consecutive quarter of growth better than 2%. Preliminary first-quarter GDP numbers are due to be reported Thursday.

For the past several decades, higher rates have not been linked to recessions.

On the contrary, Fed chairs have often been faulted for keeping rates too low for too long, leading to the dot-com bubble and subprime market implosions that triggered two of the three recessions this century. In the other one, the Fed’s benchmark funds rate was at just 1% when the Covid-induced downturn occurred.

In fact, there are arguments that too much is made of Fed policy and its broader impact on the $27.4 trillion U.S. economy.

“I don’t think that active monetary policy really moves the economy nearly as much as the Federal Reserve thinks it does,” said David Kelly, chief global strategist at J.P. Morgan Asset Management.

Kelly points out that the Fed, in the 11-year run between the financial crisis and the Covid pandemic, tried to bring inflation up to 2% using monetary policy and mostly failed. Over the past year, the pullback in the inflation rate has coincided with tighter monetary policy, but Kelly doubts the Fed had much to do with it.

Other economists have made a similar case, namely that the main issue that monetary policy influences — demand — has remained robust, while the supply issue that largely operates outside the reach of interest rates has been the principle driver behind decelerating inflation.

Where rates do matter, Kelly said, is in financial markets, which in turn can affect economic conditions.

“Rates too high or too low distort financial markets. That ultimately undermines the productive capacity of the economy in the long run and can lead to bubbles, which destabilizes the economy,” he said.

“It’s not that I think they’ve set rates at the wrong level for the economy,” he added. “I do think the rates are too high for financial markets, and they ought to try to get back to normal levels — not low levels, normal levels — and keep them there.”

As a matter of policy, Kelly said that would translate into three quarter-percentage point rate cuts this year and next, taking the fed funds rate down to a range of 3.75%-4%. That’s about in line with the 3.9% rate at the end of 2025 that Federal Open Market Committee members penciled in last month as part of their “dot-plot” projections.

Futures market pricing implies a fed funds rate of 4.32% by December 2025, indicating a higher rate trajectory.

While Kelly is advocating for “a gradual normalization of policy,” he does think the economy and markets can withstand a permanently higher level of rates.

In fact, he expects the Fed’s current projection of a “neutral” rate at 2.6% is unrealistic, an idea that is gaining traction on Wall Street. Goldman Sachs, for instance, recently has opined that the neutral rate — neither stimulative nor restrictive — could be as high as 3.5%. Cleveland Fed President Loretta Mester also recently said it’s possible that the long-run neutral rate is higher.

That leaves expectations for Fed policy tilting toward cutting rates somewhat but not going back to the near-zero rates that prevailed in the years after the financial crisis.

In fact, over the long run, the fed funds rate going back to 1954 has averaged 4.6%, even given the extended seven-year run of near-zero rates after the 2008 crisis until 2015.

One thing that has changed dramatically, though, over the decades has been the state of public finances.

The $34.6 trillion national debt has exploded since Covid hit in March 2020, rising by nearly 50%. The federal government is on track to run a $2 trillion budget deficit in fiscal 2024, with net interest payments thanks to those higher interest rates on pace to surpass $800 billion.

The deficit as a share of GDP in 2023 was 6.2%; by comparison, the European Union allows its members only 3%.

The fiscal largesse has juiced the economy enough to make the Fed’s higher rates less noticeable, a condition that could change in the days ahead if benchmark rates hold high, said Troy Ludtka, senior U.S. economist at SMBC Nikko Securities America.

“One of the reasons why we haven’t noticed this monetary tightening is simply a reflection of the fact that the U.S. government is running its most irresponsible fiscal policy in a generation,” Ludtka said. “We’re running massive deficits into a full-employment economy, and that’s really keeping things afloat.”

However, the higher rates have begun to take their toll on consumers, even if sales remain solid.

Credit card delinquency rates climbed to 3.1% at the end of 2023, the highest level in 12 years, according to Fed data. Ludtka said the higher rates are likely to result in a “retrenchment” for consumers and ultimately a “cliff effect” where the Fed ultimately will have to concede and lower rates.

“So, I don’t think they should be cutting anytime in the immediate future. But at some point that’s going to have to happen, because these interest rates are simply crushing particularly low-income-earning Americans,” he said. “That is a big portion of the population.”

Shares of Trump Media shot up more than 9% on Wednesday, hours after the company revealed it was urging House Republican committee leaders to investigate possible “unlawful manipulation” of its stock.

The stock boost also came one day after a deadline passed for former President Donald Trump, the company’s majority owner, to become eligible for an additional 36 million “earnout” shares. That stake was worth more than $1.3 billion as of the share price at 3:25 p.m. ET.

It was unclear what spurred the sudden rise of Trump Media, which began the trading day down nearly 5% before turning positive later Wednesday morning.

The company’s CEO, Devin Nunes, in a letter Tuesday asked the GOP chairs to probe “anomalous trading” of the stock in order to gauge the extent of the alleged manipulation and “whether any laws including RICO statutes and tax evasion laws were violated.”

The request doubles down on Nunes’ claim that Trump Media, which trades under the ticker DJT, is the apparent victim of “naked” short selling, the practice of selling a company’s shares without first borrowing them for that purpose.

Trump Media, which began trading on the Nasdaq on March 26 after completing a lengthy public merger, was far and away the most expensive U.S. stock to short as of early April.

Brokers therefore “have a significant financial incentive to lend non-existent shares,” wrote Nunes, himself a former House GOP chair, in the letter.

The probe is necessary to protect the company’s shareholders and to ensure that “the perpetrators of any illegal activity can be held to account,” he wrote.

The CEO addressed the letter to four House committee leaders: Financial Services Chairman Patrick McHenry, R-N.C., Judiciary Chairman Jim Jordan, R-Ohio, Ways and Means Chairman Jason Smith, R-Mo., and Oversight Chairman James Comer, R-Ky.

Spokespeople for the four chairmen did not immediately respond to CNBC’s requests for comment on Nunes’ letter.

The letter comes as the stock price of Trump Media, which created the social media app Truth Social, continues to trend down in volatile trading sessions.

DJT shot up in its trading debut and has touched a high of nearly $80 a share, but it has since lost more than half of that value.

Trump Media has been described as a meme stock and a “scam” by some analysts who are quick to highlight the disparity between the company’s lack of revenue and its roughly $5 billion market capitalization.

The letter from Nunes also escalates a feud with Citadel Securities, the capital markets firm founded by GOP megadonor Ken Griffin.

Nunes referenced Citadel Securities in an April 18 letter to Nasdaq CEO Adena Friedman, warning that DJT “appears on Nasdaq’s ‘Reg SHO threshold list,’ which is indicative of unlawful trading activity.” He referenced Citadel Securities again in the new letter he sent to Congress.

The Reg, or Regulation, SHO list was designed to monitor short sales and flag potentially problematic failures to deliver securities to parties in a transaction. But “there are many justifiable reasons why broker-dealers do not or cannot deliver securities on the settlement date,” the SEC notes on its website.

Nunes told Friedman in his letter that more than 60% of DJT shares have been traded by just four market participants, including Citadel Securities.

The firm responded with a statement blasting Nunes as “the proverbial loser who tries to blame ‘naked short selling’ for his falling stock price.”

“Nunes is exactly the type of person Donald Trump would have fired on [The] Apprentice,” a spokesperson for Citadel Securities added in that statement Friday.

A spokeswoman for Trump Media shot back: “Citadel Securities, a corporate behemoth that has been fined and censured for an incredibly wide range of offenses including issues related to naked short selling, and is world famous for screwing over everyday retail investors at the behest of other corporations, is the last company on earth that should lecture anyone on ‘integrity.’”

A representative for Citadel Securities did not immediately respond to a request for comment.