Wells Fargo estimates that inflation is borrowing too much and too soon – but what does it take to get rid of? A study by Rebecca Veverka
When a lot of spending was off limits and the government was sending out relief payments, Americans piled up savings.
Over the last year, those savings helped many people maintain their spending despite rising prices and interest rates. But economists at Wells Fargo say those “excess” savings may soon be whittled away.
“Whether the pandemic-related buffer runs dry by the end of this year or the start of next, households will still have the ability to spend at elevated rates,” Wells Fargo said in a research note Monday. It will only come with a worsening of household finances.
Veverka is currently in a place where he can manage, but he isn’t sure what to do if it gets much worse. She drew down some of her savings to pay off credit card debt.
Rebecca Veverka, for example, has been pinching pennies in her entertainment and travel budget to avoid straining her bank account. Most of her TV streaming services were canceled by the Parma resident, who now subscribes to just one at a time. She’s also opted not to visit a friend in Washington state this summer.
Source: https://www.npr.org/2023/07/04/1185772029/economy-inflation-recession-savings-spending-interest-rates
The Fed’s Actions on the Nation’s Consumer Spending: Statistics and Workforce Growth during the First 3 Months of June, and a Quarterly Recovery
Consumer spending helps keep the economy afloat, it accounts for more than a third of all economic activity. The consumer life-raft may be losing some air.
The Institute for Supply Management has a monthly survey done by Tim Fiore who said that uncertainty is their biggest enemy.
The Fed’s actions have had an effect on the housing and manufacturing world and will continue to have an effect on the broader economy.
The nation’s gross domestic product grew at an annual rate of 2% in the first three months of the year — down from 2.6% at the end of last year and 3.4% in the third quarter of 2022.
Wage growth has slowed but employers are having to pay more to get workers. Average private sector wages in May were 4.3% higher than a year ago, slightly ahead of inflation and boosting workers’ real buying power.
There are some signs that demand is cooling. The pace of job growth has slowed in the last six months. Job openings have fallen, but there are still many more open positions than unemployed workers.
Health care and hospitality have continued to grow. And even those that are struggling are reluctant to lay off workers for fear it will be hard to hire them back when business rebounds.
Employers have created more than 4 million jobs in the last year, or an average of 338,000 jobs a month. The unemployment rate has been below 4% for 16 months in a row — the longest such stretch since the 1960s.
Source: https://www.npr.org/2023/07/04/1185772029/economy-inflation-recession-savings-spending-interest-rates
Inflation, the Economy, and Interest Rates: The Fed’s Close Look at the Recent Economic Situation in the Context of Recession Fears
The Fed is concerned about rising prices, and policymakers are likely to raise interest rates in order to bring inflation under control.
This is a very difficult time for the Fed, according to the minutes. Inflation has come down quite a bit, but it’s partly because food and fuel prices are cooling off. An inflation measure that excludes the volatile categories of core inflation is making a slow decline. That has caught the Fed’s attention, especially given signs that the broader economy is holding up.
Inflation was 4% in May, down from 9% in June of last year. The price of gasoline is around $3.53 per gallon. The last three months has seen a slight decrease in grocery bills.
The job market is strong, with unemployment near a half-century low. The Federal Reserve’s efforts to fight inflation are keeping recession fears alive.
“Almost all participants stated that, with inflation still well above the Committee’s longer-run goal and the labor market remaining tight, upside risks to the inflation outlook or the possibility that persistently high inflation might cause inflation expectations to become unanchored remained key factors shaping the policy outlook,” the minutes said.
Officials noted that price increases for goods — physical purchases like furniture or clothing — were moderating, but less quickly than expected in recent months. Rent inflation was supposed to cool down while helping to lower overall inflation but some officials were worried that it would be less than expected because of low for-sale housing inventory and a recent decline in rents for new tenants. “Some” Fed officials noted that other service prices “had shown few signs of slowing in the past few months.”