### Summary
📉 Americans could run out of savings as early as this quarter, according to a Fed study. Excess savings are likely to be depleted during the third quarter of 2023.
### Facts
- 💸 As of June, US households held less than $190 billion of aggregate excess savings.
- 💰 Excess savings refer to the difference between actual savings and the pre-recession trend.
- 🔎 San Francisco Fed researchers Hamza Abdelrahman and Luiz Oliveira estimate that these excess savings will be exhausted by the end of the third quarter of 2023.
- 💳 Americans are using their credit cards more, accumulating nearly $1 trillion of debt.
- 📉 The downbeat forecast raises concerns about the US economy as consumer spending is crucial for growth.
The majority of economists polled by Reuters predict that the U.S. Federal Reserve will not raise interest rates again, and they expect the central bank to wait until at least the end of March before cutting them, as the probability of a recession within a year falls to its lowest level since September 2022.
A stock market rally is expected in the near term, as recent market corrections have created potential opportunities for investors to increase equity exposure, despite the possibility of a 5-10% correction still lingering. Additionally, analysis suggests that sectors such as Utilities, Staples, Real Estate, Financials, and Bonds, which have underperformed in 2023, could present decent upside potential in 2024, particularly if there is a Federal Reserve rate-cutting cycle.
Philadelphia Federal Reserve Bank President Patrick Harker suggests that the central bank may maintain steady interest rates in September and for an extended period of time to allow previous rate hikes to continue lowering inflation.
The spike in retail inflation has raised uncertainty for investors and savers, with expectations of interest rate cuts being pushed to the next fiscal year and the possibility of a rate hike. The Reserve Bank of India projects inflation to stay above 5% until the first quarter of 2024-25, and food price pressures are expected to persist. While inflation may impact stock market returns, gold and bank deposit rates are expected to remain steady.
The Bank of Canada is expected to keep its key interest rate steady at 5.00% and maintain that level until at least the end of March 2024, despite rising inflation and a revival in the housing market, according to economists in a Reuters poll.
The Federal Reserve is expected to hold interest rates steady this month, but inflation could still lead to additional rate increases.
US household savings accumulated during the pandemic are expected to be depleted by the end of September 2023, as the excess savings have steadily declined and are projected to continue falling at a rate of $100 billion per month, potentially impacting consumer spending and the wider economy.
The European Central Bank is expected to maintain interest rates on September 14, although nearly half of economists anticipate one more increase this year in an effort to reduce inflation.
Mortgage rates remain elevated, slowing housing market activity, and while home prices are not likely to fall significantly, rates are projected to decrease in 2023 and 2024.
Investors now have the opportunity to earn high interest rates on their cash deposits, with some potentially earning as much as 5% or more, marking the highest rates in 15 years, prompting financial advisors to urge savers to shop around for the best rates and avoid holding too much cash.
The US consumer is predicted to experience a decline in personal consumption in early 2024, which could lead to a potential recession and downside for stocks, as high borrowing costs and dwindling Covid-era savings impact household budgets.
Despite the current rise in interest rates, experts predict that CD rates will remain relatively stable in 2023, with the possibility of a slight increase, but a downward trend is expected for 2024.
The Federal Reserve is expected to maintain its benchmark interest rate and may not cut it until the second quarter of 2024 or later, according to economists in a Reuters poll.
Traders and investors are betting that the Federal Reserve will hold interest rates steady at its September meeting, indicating a shift in the market's interpretation of good economic news, as it suggests the Fed may be close to pausing its rate hike cycle despite inflation being above target levels and potential headwinds in the economy.
The stock market is currently stagnant and the key question is when the Federal Reserve will start cutting interest rates, as the market struggles when the Fed tightens monetary policy.
The Federal Reserve is expected to keep its key interest rate steady in its upcoming meeting and provide insights on the duration of high interest rates.
Following the European Central Bank's record high interest rate hike to 4%, there is speculation about how long rates will remain at this level, with analysts predicting a 12-month pause before any cuts are made, while also considering the impact of rising oil prices on inflation expectations in Europe and the US. The Federal Reserve is expected to hold rates steady in September, but there are divided opinions on whether another hike will be delivered this year, with markets anticipating rate cuts in 2024. Similarly, the Bank of England is anticipated to make one final hike in September as it assesses inflation and economic indicators.
High mortgage rates have frozen the US housing market, but experts predict that the Federal Reserve may cut interest rates in the next 12 to 18 months, potentially leading to a decline in mortgage rates.
The Federal Reserve is expected to maintain interest rates for now but keep the option open for future rate hikes to address inflation concerns.
The Federal Reserve has paused raising interest rates and projects that the US will not experience a recession until at least 2027, citing improvement in the economy and a "very smooth landing," though there are still potential risks such as surging oil prices, an auto worker strike, and the threat of a government shutdown.
The Federal Reserve has indicated that interest rates will remain "higher for longer," potentially for at least three more years, in order to sustain economic growth and combat inflation.
The possibility of a last hike in 2023 with the pause in interest rates in September may lead to the tightening and financial conditions that were not seen earlier when the Fed was raising rates faster.
The forecasted U.S. recession in 2024 is expected to be shorter and less severe than previous recessions, with the economy's interest-rate sensitivity much lower due to reduced leverage and elevated savings from the postpandemic environment, leading investors to consider positioning for investment opportunities that will drive markets into 2024.
A drop in savings among Americans and record credit-card debt could have disastrous consequences for the economy if a recession occurs, as data shows personal savings rates remain historically low and many Americans have less than $5,000 in savings.
Banks are offering historically low interest rates on savings accounts, but savers can still find higher rates of 4% or even 5% through online high-yield savings accounts, money market accounts, and certificates of deposit.
J.P. Morgan strategists predict that the Federal Reserve will maintain higher interest rates until the third quarter of next year due to a strong economy and continued inflation, with implications for inflation, earnings, and equity valuations as well as potential impact from a government shutdown.
The recent pause in rate hikes by the Fed suggests that savings rates have reached their peak and are unlikely to go much higher, making it a good time to lock in a CD term and diversify short- and long-term savings.
Investors are becoming increasingly concerned about sustained high interest rates, with the bond and foreign-exchange markets already showing signs of adjusting, and if stock markets do not follow suit, the coming months could be particularly challenging.
Billionaire investor Bill Ackman predicts that the Federal Reserve is likely done raising interest rates as the economy slows down, but warns of continuing spillover effects and expects bond yields to rise further.
Interest rates for certificates of deposit and high-yield savings accounts have increased significantly in recent years due to the Federal Reserve's rate hikes, but it is uncertain if rates will continue to rise or if they have reached their peak.
Despite the ongoing bear market in Treasury bonds, certain sectors of the fixed-income market, such as bank loans, short-term junk bonds, and floating-rate notes, are performing well in 2023, offering some protection from the losses in long-term Treasuries, which have slumped 46% since March 2020. The future performance of long-dated bonds depends on the Federal Reserve's monetary policy and the resilience of the economy.
The Reserve Bank of Australia (RBA) may cut interest rates in the second half of 2024, according to major bank economists, but the interest rate futures market does not anticipate any rate cuts until March 2025; historical data suggests that rate cut cycles following periods of high inflation have led to varying impacts on housing prices and unemployment, and it remains to be seen how the current economic conditions will affect these indicators.
Global monetary policy is expected to transition from a period of low interest rates to rate cuts by the beginning of 2024, with only a few central banks anticipated to maintain steady rates, according to Bloomberg Economics. The forecast signals a turning point in the tightening cycle and suggests that the era of ultra-low rates will not return anytime soon. The report also highlights a slower pace of descent compared to the initial rate hikes that led to the higher borrowing costs.
Experts predict that mortgage rates will start to trend downward in 2024, although the rate of decrease may not be very fast.
Investors are betting that the Federal Reserve may not raise interest rates again due to recent market moves that are expected to cool economic growth.
World Bank President Ajay Banga predicts that interest rates will remain high for a longer period, impacting investments globally and creating challenges for central banks dealing with ongoing wars and trade flow disruptions.
