What many in media and news do not understand, is consumers are gaining confidence due to the expectation that President Trump will be returning to the White House.
In May, U.S. consumers showed a surprising boost in confidence, according to recent data. This increase in consumer sentiment contrasts with other surveys that depict Americans as pessimistic about their economic future. This paradox highlights a significant challenge for the Federal Reserve and its interest rate policies.
"Oh, I bet you it’s [LNG exports] going to resume magically right after the November elections."
Rep. Pat Fallon details the game plan. The Biden Administration wants to make radical environmentalists happy in an election year at the expense of American consumers— as if… pic.twitter.com/wgOH3r1hnV
— Oversight Committee (@GOPoversight) May 23, 2024
Interest rates, traditionally manipulated to control economic growth, are proving problematic in their current high state. While lower rates typically stimulate economic growth, the high rates over the past 18 months have not slowed the economy as expected. According to Dana Peterson, Chief Economist at the Conference Board, the most substantial increase in confidence has come from those earning above $100,000 annually. These individuals, particularly young and affluent consumers, have maintained the highest confidence levels on a six-month average.
The effects of high interest rates are multifaceted. Wealthy Americans benefit significantly, as they can earn substantial returns from high-yield savings accounts and see notable gains in their equity portfolios and real estate investments. This scenario has led to robust spending by affluent consumers, keeping services inflation high and overall inflation rates above the Federal Reserve’s 2% target. This situation supports the assertion by JPMorgan’s Jack Manley that persistent inflation might be better addressed by reducing rates, contrary to keeping them elevated.
Thanks so much to Neil Cavuto @TeamCavuto and @jennadethom for having me on @FoxBusiness today to discuss the American Consumer, #StockMarket $AAL $DAL and more. You can find it here 👇👇👇 pic.twitter.com/qx5lQldlyX
— Thomas J. Hayes (@HedgeFundTips) May 29, 2024
The distribution of wealth (this is always a signal about Leftists who write articles) in the U.S. makes any monetary policy change potentially regressive, disproportionately benefiting the wealthier segments of society at the expense of the less affluent. This dynamic has shifted the Federal Reserve’s stance from one where low rates were criticized for harming savers to a scenario where high rates disproportionately benefit them.
This irony in policy outcomes is mirrored in public perception. Despite strong economic indicators, a recent poll indicated that 56% of Americans believe the economy is in recession, and nearly half think the S&P 500 index has declined this year, whereas it has actually risen by over 11%. Furthermore, the latest consumer confidence report, although improved, doesn’t fully reassure that Americans are optimistic about the economy. Factors like easing gas prices and rising equity prices contributed to the recent uplift in sentiment, yet concerns about a potential recession, financial insecurity, and a decline in home purchasing plans highlight ongoing consumer anxieties, as noted by Grace Zwemmer, associate U.S. economist at Oxford Economics.
Intensification of Affordability Crisis
Homebuying conditions for American consumers this month plummeted to their lowest level in history. The housing affordability index dropped by 30 points, marking a 40-point dip below the previous minimum recorded in the early 1980s. Over… pic.twitter.com/v6daaY1QqD
— TSTA | Markets (@tstamarkets) May 28, 2024
These economic misperceptions present a significant challenge for political figures like President Biden, who must convince the electorate that the economy is beneficial for them without appearing dismissive or out of touch. This challenge is exacerbated by the unintended consequences of foundational economic policies, making it a daunting task to achieve under any circumstances, let alone in a pre-election environment. –
Major Points
- U.S. consumer confidence rose in May, particularly among high-income earners, despite broader economic pessimism.
- High interest rates have disproportionately benefited wealthy Americans, boosting their returns on savings and investments, which has contributed to persistent high inflation.
- The wealth distribution impacts of monetary policy are regressive, favoring the affluent and compounding income inequality.
- Despite positive economic data, public perception is skewed, with many Americans believing the economy is in recession and misunderstanding stock market performance.
- These economic dynamics pose significant challenges for political leaders like President Biden, especially in convincing the public of economic benefits ahead of elections.
Deidra Malley – Reprinted with permission of Whatfinger News