The Haves and Have-Nots at the Center of America’s Inflation Fight
There’s a growing gap between Americans who are battered by high inflation and interest rates and those who are actually benefiting
By David Uberti, The Wall Street Journal, July 30, 2024
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Middle- and lower-income Americans generally faced faster inflation than the affluent from 2006 to 2023, according to a Labor Department analysis, thanks in large part to housing and insurance prices. New York Fed researchers say aggressive moves to fight inflation also disproportionately hurt the poor through higher borrowing costs and a weaker labor market.
Those slow-moving factors have ground down many households’ budgets. A UBS analysis of federal data showed excess savings accumulated during the pandemic have been fully depleted for the bottom 40% of earners. Now, delinquency rates for credit cards are higher than at any point since the aftermath of the Great Recession in 2010, according to BCA Research. The unemployment rate then was more than double its level now…
An alternate reality is playing out among America’s high earners. In addition to paper gains from stocks and home values, Americans are pocketing more cash than ever from dividends and interest, helping many wealthy people keep pace with inflation, if not outrun it…
The pressure would likely be greatest for those who have been battered by higher interest rates in the form of adjustable-rate mortgages or credit-card debt. At an annual rate accounting for seasonal swings, Americans in June were on pace for $531 billion in personal interest expenses in 2024, according to the St. Louis Fed. That’s up 77% from two years earlier…[end quote]
Borrowers are being supported by the strong labor market and income increases. If/ when a recession arrives the Fed will cut the fed funds rate but many households will lose income while still owing high-interest debts.
Wendy