The US economy has held up remarkably well this year, defying recession predictions, thanks in part to Americans’ pandemic-era savings that have cushioned consumer spending.
But that support is now running low.
Americans’ personal savings have collapsed by an eye-watering $5.5 trillion since April 2020 thanks to soaring inflation, according to Barchart.com – and that could spell trouble for the economy.
Such reserves have now fallen to levels lower than before COVID-19, the financial data provider said in a tweet.
US household savings surged during the pandemic, spurred by government stimulus checks and a drop in in-person spending. That cash pile has boosted consumer spending ever since the COVID restrictions were relaxed, supporting the economy even as the Federal Reserve raised interest rates steeply since last spring.
But historically high inflation in the US since mid-2021 has eaten into the savings, as prices of everything from energy to food surged. Inflation hit a 40-year high of 9.1% in mid-2022, but has since slowed to 3% as of last month – thanks to the Federal Reserve’s aggressive rate hikes.
The US central bank has increased benchmark borrowing costs by 500 basis points since early 2022 in a bid to bring inflation down to its 2% target.
Billionaire investor Bill Gross recently weighed in on falling consumer savings levels, warning that Americans could run out of their pandemic savings later this year, paving the way for a recession.
