The pressure households feel from decades-high inflation is tainting their view of a strong economy — and heightening recession angst.
Why it matters: This is the challenge for the Biden administration, which has gone to great lengths to tout the otherwise steady economy. But for consumers (and voters), stubborn inflation may trump all.
A recent YouGov poll found that a majority of Republicans (70%) and a sizable share of Democrats (40%) think the U.S. is currently in a recession.
- Respondents who said they had the hardest time affording gas, food, car payments or rent were most likely to believe the country is in a recession.
Where it stands: The official recession arbiters have not called a change in the business cycle. In fact, the chances they will seem slim, at least for now, with the key indicators they watch pointing to a healthy economy.
The good: The economy has added jobs at an eye-popping pace of 400,000 per month in the last three months. Job openings are near record-highs, and layoffs are at all-time lows. Spending is strong as consumers indulge more on services.
The bad: Real wages are down, and buying power is compressing. That squeezes lower-income households that spend a disproportionate share of their income on what keeps getting more expensive: energy and food.
- "They're dealing with the consequences of the Fed keeping rates too low without the benefits of the Fed keeping rates too low, i.e. inflated asset prices," says Vincent Reinhart, chief economist at Dreyfus and Mellon.
The bottom line: Inflation is showing signs of leveling off. But even as prices stop rising as quickly, consumers will still face high prices — a challenge for the Fed and the Biden administration.
