With inflation failing to fall below the Federal Reserve’s target of sub-3% for the last few months, interest rates remain at record highs, and it could be because of one generation.
As the cost of groceries, gas, rent, and more continue to cost Americans more than ever before, a new report from the Associated Press is suggesting that older Americans who are well off may be behind the current economic trend.
The report says that older Americans who are benefiting from outsize gains in the stock and housing market over the past several years are accounting for a larger share of consumer spending than ever before, driving economic growth.
With spending being directed towards things like travel, entertainment, and health care, the pressure remains on those prices, resulting in higher inflation and higher interest rates.
Another trend being observed is older Americans who hold government bonds seeing huge benefits from the Fed’s rate hikes, generating more income.
From 2018 to 2023, Americans’ wealth jumped from $98 trillion to $147 trillion, a massive increase even when adjusting for inflation.
Torsten Slok, the chief economist at the Apollo Group, shared with the AP where the rise has come from.
“People have had significant wealth gains in stocks, significant wealth gains in fixed income, significant wealth gains in home prices, significant wealth gains even in crypto,” Slok said. “All that adds up to still a very significant tailwind.”
However, one major red flag when it comes to the increase in wealth is that it didn’t come across the board, as the nation’s wealthiest one-tenth owns two-thirds of all household wealth.
There are some positives, however, with the median household’s wealth rising 37% from 2019 to 2022, the largest increase since the 1980s, the Fed shared.
With an increase in income and wealth, spending remains strong. However, while strong, consumer spending also takes a majority of the blame from the Fed as the reason why inflation has failed to slow, keeping interest rates where they are at for the time being.
The Fed is expected to meet this week, but no change appears to be on the docket for interest rates, which currently sit at a 23-year-high after 11 straight rate hikes.
As for older Americans, it isn’t sunshine and cruises for everyone in their golden years, as several reports have found that older Americans are returning to work after retirement to help offset rising prices, while many don’t think they’ll ever retire.