Despite inflation and recession fears, Americans have continued spending over the past year, keeping businesses open and people employed. Even now, as the money many people saved during the pandemic dries up, spending is still going strong. But the commitment by U.S. consumers to buy, and then buy some more, is a double-edged sword. While it’s keeping the economy humming, it could also lead to inflation and high prices for years to come.
Flush with $2.5 trillion in excess savings at the beginning of last year, U.S. households let loose on the economy once the pandemic’s emergency phase ended. In March 2022, when U.S. inflation had risen to nearly 8.5% and the Federal Reserve had just announced its first interest rate hike to cool the economy, consumer spending was still 18% higher than in March 2020 and 12% higher than what pre-pandemic forecasts had predicted, according to consulting firm McKinsey.
