Consumers only saved 3.1% of their after-tax income in September, the Bureau of Economic Analysis reported Friday. Since this summer, Americans have been saving at rates similar to those that preceded the Great Recession. Consumer prices have been rising rapidly, with inflation running close to its highest in 40 years. But people haven’t cut back their spending, the BEA said, and in fact, have been ramping it up. While consumer spending is a main engine of the economy, the fact that shoppers are unfazed complicates the Federal Reserve’s fight against inflation. The Fed is trying to discourage borrowing and spending by raising interest rates. In doing so, The Fed has increased borrowing costs on all kinds of loans in hopes of bringing supply and demand back into balance. “Maybe it would be healthier if we were fazed,” Wells Fargo Securities economists Tim Quinlan and Shannon Seery wrote in a commentary. “Contrary to our expectations, consumers are still price takers. That is bad news for policymakers at the Federal Reserve. Firms have no incentive to lower prices if cash-strapped consumers are willing to forfeit saving for the future in order to sustain a rate of spending that exceeds their income.” Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.
