The US economy is currently doing pretty well, much better than predicted two years ago. However, inflation rates were up 5.4% (in January) higher than last year. This is clearly much higher than the target 2% rate, and to achieve this rate the Fed will continue to raise interest rates. Since 2022 the interest rates have been increasing rapidly and recently reaching 4.5%, a 15 year high. For private consumers these high interest rates increase the cost of having a balance of credit cards. For businesses the interest rates make it more expensive to borrow money, which often leads to reducing spending which could mean laying off workers. The Feds plan of increasing interest rates to battle inflation will not change any time soon. Who is this affecting?
Recent data shows that the higher income houses are not feeling the effects of the inflation as they continue to shop and travel despite the price raises. The top 40% of households make up 60% of the consumer spending, and that number has been increasing over the past few years. Lower income households are hit hard by the higher prices and are struggling. This has led to credit card debt being at an all time high. Although the economy is doing well now there will be an impact due to the lack of spending by lower income households. The Fed will need to look for a new solution to combat the inflation rate or just lower interest rates to see if spending goes up by lower income households. Should the higher income households have to pay higher taxes or give up some of their money? Either way something will have to be done.
Reference:
Semuels, A. (2023, February 24). U.S. inflation rates are rising, a bad sign for most Americans. Time. https://time.com/6258167/inflation-rising/
I was not aware that the top 40% of households made up 60% of the consumer spending. With that number increasing, there has to be a change made to stop the growth but they also have to take into account the problem of inflation. What do you think should be done?
ReplyDeleteFamilies with lower incomes are especially affected by higher inflation rates, which is concerning. In addition to making credit card balances more costly for individuals, interest rates are raising the cost of borrowing for businesses, resulting in job losses.
ReplyDeleteYour point on how inflation is affecting different income brackets, with higher-income households largely unaffected (top 40% spending roughly 60% of consumer spending), displays the growing economic disparity in the US. With that being said, I hope U.S. policymakers can counteract the effect of inflation.
ReplyDelete