On Thursday’s broadcast of MSNBC’s “Morning Joe,” Steve Rattner, who served as counselor to the Treasury Secretary in the Obama administration, and also serves as the show’s Economic Analyst, stated that default rates on credit cards and auto loans have “started to move up a good bit” and this, along with excess savings among Americans starting to run out are concerning signs for the economy.
Rattner stated that while the inflation rate has dropped, “we still have a ways to go. But I would say very few economists expected this to come down as far and as fast as it has. And that means, obviously, good news for consumers, in terms of what their real spending power is. So, you’ve had wage growth throughout this period, and it actually accelerated due to the low unemployment rate and the demand for workers. And it’s above 4%. But, after inflation, Americans had been negative for a good while. But the good news is, now they’re positive.”
He added, “I have talked a lot about why Americans are so grumpy given that you have 5% growth. And I think inflation plays, by far, the biggest role in that. Because Americans still see higher prices at the grocery store. Something like 70% of Americans today were not of voting age the last time we had inflation over 4%, 30 years ago. Most Americans have never seen it, and so they don’t quite know how to process it.”
Rattner continued that the positive GDP revision does increase the likelihood of getting inflation to its target without a recession, the Federal Reserve may be able to start cutting rates, which the market expects, and America is doing better than the rest of the G7.
He concluded, “[O]ne thing that is of some concern, is that, as we’ve talked about before, during the pandemic, consumers amassed something like $2 trillion of what we call excess savings, money that they couldn’t spend when they were locked down, plus government stimulus payments and other things. Part of what is fueling that 5% and all the other good numbers we’ve seen has been that they have been spending this money. And they’ve spent it down, but most estimates now have it being pretty close to zero. And so, at some point, they’re going to have to reckon with that, and we’ll see what that does to their ability to spend, as well as, of course, their happiness about the economy and their approval rate of the president. And there are some other little worrisome signs out there. For example, credit card delinquencies. Credit card interest rates are over 20% at the moment, as a consequence of the Fed’s policy, and, putting a lot of this together, more people are defaulting. It’s still a small number, 3%, on their credit cards. And you see a similar phenomenon if you look at something like auto loans, particularly by low-income Americans. The default rates there have actually also started to move up a good bit. So, there [are] little things out there to worry about, but, on balance, we do have the strongest economy in the developed world. And we shouldn’t forget that.”
Follow Ian Hanchett on Twitter @IanHanchett
COMMENTS
Please let us know if you're having issues with commenting.