Williams explains the perverse result comes from wealth effects and higher rates leading households to consume more and work less.
“This “perverse” result, in the words of John Campbell (1994), 5 stems from the combination of a strong wealth effect and higher expected real interest rates, which contribute to a transition period during which households enjoy greater consumption and leisure.”
Williams cites New York Fed research showing higher-income households and homeowners had substantially stronger consumption growth than lower-income renters.
“Research by New York Fed economists found that over recent years, higher-income households and homeowners have experienced substantially stronger consumption growth than lower-income households and renters.”