The U.S. economy is strong. But with high interest rates, it’s not all good news if you aren’t rich
BY ALANA SEMUELS
INSIDE THE CONTROVERSY OVER REWRITING ROALD DAHL INSIDE AN AP AFRICAN AMERICAN STUDIES CLASSROOM YES, SINGLE PEOPLE CAN BE HAPPY AND HEALTHY
THE NUMBERS KEEP ROLLING IN TO CONFIRM: Things look very good in the U.S. economy. Employers added half a million jobs in January, more than twice as many as economists had predicted. Spending by U.S. households rose 1.8% over December, and retail sales jumped at a higher rate than they had for nearly two years.
You’d think it would be time to kick back, sip a martini, and celebrate. But it’s not. The continued strength of the U.S. economy means the Federal Reserve’s efforts to slow inflation by increasing interest rates are not working as quickly as they’d hoped. Inflation rose 5.4% in January from a year ago, according to data from the Fed’s preferred index released Feb. 24.
The Fed wants inflation to be around 2% and will keep increasing interest rates until it gets near that target. (Whether it should give up on that target is a question the Fed doesn’t seem interested in pursuing at the moment.)
“The consumer is the stallion running wild, and the Fed is the cowboy—and the Fed will win at the end of the day,” says Mark Zandi, chief economist at Moody’s Analytics.
Already, the Fed has raised interest rates from near zero in April 2020 to a 15-year high of above 4.5%, the most aggressive policy since the 1980s. Officials don’t expect to reduce interest rates until at least 2024.
If you’re not someone who needs to borrow a lot of money in the foreseeable future to buy a house or make another big purchase, you might not think the Fed’s moves are relevant to you. But they are. Higher interest rates also increase the cost of having a balance on a credit card. They make it more expensive for businesses to borrow money, and when companies have higher expenses, they’re going to look to either raise prices or cut spending. That often means laying off workers, one reason we’ve seen tens of thousands of tech layoffs in recent months.
WHAT HAPPENS NEXT as the Fed works to slow inflation could be especially painful for those at the bottom half of U.S. income distribution. Consumer spending is what’s driving the hot economy right now, but it’s mostly consumers in the top half of that income distribution who are doing the spending, Zandi points out.
Recent data suggests that the U.S. economy isn’t going into a recession anytime soon. These higher-income households saved so much money during the pandemic
