Source: Golden Ten Data
High interest rates give savers an excessive advantage, yet they cause difficulties for others.
US consumer confidence increased in May, according to data released by the US Economic Advisory Council on Tuesday. However, the main driving force behind this data revealed why other surveys showed that Americans were pessimistic about their economic prospects, and also revealed the embarrassing problem facing the Federal Reserve's interest rate policy. That is, high interest rates are helping the richest Americans drive economic growth in the US, making it difficult for the Federal Reserve to implement the measures it hopes to cut interest rates.
The simplified theory of interest rate hikes and interest rate cuts is straightforward — interest rate cuts accelerate economic growth, while interest rate hikes cool the economy. However, the US economic experience over the past 18 months makes the second point difficult to convince at present.
Dana Peterson, chief economist at the Economic Advisory Council, said in a statement: “In terms of income, the confidence of people who earn more than $100,000 a year has increased the most. Looking at the six-month moving average, confidence continues to be highest among the youngest (under 35) and richest (with an annual income of more than $100,000).”
Financial commentator Josh Brown notes that given the benefits high interest rates give to the richest Americans, this could prolong the current inflation cycle.
Currently, wealthy families can earn more than 4.5% in high-yield savings accounts, their stock portfolios have risen 20% within a year, and their real estate values have also soared. What these people want most is to keep interest rates high. Strong spending from wealthy consumers also kept service sector inflation high, thereby increasing overall inflation beyond the Federal Reserve's 2% target.
J.P. Morgan Chase's Jack Manley's view last month is consistent with this, that is, high interest rates may be the source of long-lasting inflation, and the Federal Reserve may have a better chance of containing price pressure by cutting interest rates rather than maintaining high interest rates.
Given the concentration of American wealth in a few households and the skewed income distribution, almost any change in monetary policy would benefit the rich at the expense of the poor.
The Federal Reserve previously refuted the idea that low interest rates “hurt savers,” but now it is facing a situation where high interest rates give savers an excessive advantage, causing difficulties for others.
The fact that the Federal Reserve's policy may be contrary to what was desired explains why, according to the poll, 56% of respondents believe that the US economy is currently in recession, even though economic data clearly shows that this is not the case.
The survey also showed that nearly half (49%) of respondents believe that the S&P 500 index has declined this year, while in fact the index has risen by more than 11% this year and 23% last year.
Furthermore, although consumer confidence has reached a three-month high, from an economic perspective, it is far from a clear judgment that Americans agree that the outlook is positive.
Grace Zwemmer, US Deputy Chief Economist at the Oxford Institute of Economics, wrote in a note on Tuesday: “The rise in US consumer confidence may be driven by the easing of gasoline prices and the rise in the stock market last month, but potential details of the survey suggest that consumer confidence may be easily shaken in the future.”
Grace Zwemmer said, “Consumer data for May reflected a rise in the possibility of a recession, heightened concerns about current and future financial conditions, and home-buying plans remained at their lowest level since August 2012, reflecting the impact of high interest rates.”
Editor/jayden