May 31, 2022 — Spending, Inflation and a Recession


US households boosted spending in April, while the savings rate fell to a 14-year low, implying consumers are using savings to keep up with inflation.  Consumer spending rose 0.9 percent last month, while inflation decelerated slightly to 6.3 percent from 6.6 percent a month earlier.  Elevated savings and borrowing capacity and wage growth are likely to sustain consumption growth in face of higher inflation. Consumer spending will stay strong until unemployment rises.

Ryan Sweet, a Director at Moody’s says the Fed is faced with Hobson’s Choice: raise rates now and push the economy into a mild recession or wait, and possibly cause a more significant recession. It is generally felt the Fed will have to tighten enough to push unemployment into the 5% range.

Fed Chair Powell is less pessimistic ahead of a rate increase expected at the Fed’s June 14-15 meeting. He said last week, “By moderating demand, we could see vacancies coming down. A better balance of labor supply and demand will help get wages down and inflation without having to slow the economy and have a recession.”

Rates are going up in June. Interest rate hedges can help you moderate the effect of rising rates on future financing requirements for your business, if you act soon. Contact us to discuss the best options available for your business.