(Bloomberg) -- In the aftermath of the Federal Reserve’s jumbo rate cut and Wall Street’s predictably euphoric reaction, the US economy’s prospects appear pretty good. On Thursday, new data dropped suggesting the labor market is still robust, markets hit record highs and the biggest economic driver of all—consumer spending—remains solid despite residual inflation.
But clouds are gathering when it comes to America’s long-running shopping spree. Years of elevated prices and middling wage growth—having long ago wiped out any pandemic savings—are taking a toll that is only now becoming apparent. Americans are accumulating debt at a speedy clip, setting the stage for a national belt-tightening just as Fed Chair Jerome Powell tries to line up the economy for the runway. In the Bloomberg Originals mini-documentary Is the American Consumer Tapped Out?, we analyze the reasons why the US spending machine may be slowing, and what that means for the central bank’s soft landing plans.
Inflation steadily fell under the Fed’s rate-hike campaign, but consumer prices for key goods and services remained high, spurring accusations of price gouging—particularly among grocery chains. But more recently, businesses including fast-food retailers have begun to lower prices, offering deals as customers become more frugal. Consumers, it turns out, are increasingly buried under debt now totaling $17 trillion, stretching from mortgages to auto loans, student debt and the biggest burden of all: credit card debt.
And then there’s so-called phantom debt, a phenomenon tied to the “buy now, pay later” trend sweeping the consumer landscape, potentially hiding hundreds of billions of dollars in more debt. In Is the American Consumer Tapped Out?, we spell out how still-rising prices, slower wage growth and increasingly unsustainable debt may make the final chapter of the Fed’s bid to avoid an economic downturn a bumpy ride.
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