During the pandemic, many Americans were able to build up their savings accounts due to stimulus checks and other pandemic benefits—now those accounts are shrinking.
Key Details
- Americans have a total of $1.7 trillion in savings accumulated during the pandemic, Axios reports.
- These padded bank accounts have helped many consumers survive inflation-driven high prices and kept demand up in many industries.
- However, the excess savings are beginning to shrink as consumers have to pay more for groceries, utilities, and everyday goods.
- If consumers continue running through their savings, inflation could stick around for longer and Americans would be spending less due to a reduction in purchasing power.
Why it’s news
Shrinking savings accounts means that Americans won’t have the same protection against high prices for much longer. While more than $1 trillion remains in American savings accounts, the third quarter last year saw an increase of $2.3 trillion in savings.
As worries about layoffs grow more concerning, Americans could cut back on spending preemptively, but the backlog of savings could result in a more resilient economy.
Not every income level has been affected the same way. Higher-income earners have been able to retain a greater portion of their savings compared to low-income earners.
During the pandemic, the U.S. government injected nearly $5 trillion into the economy. Around $1.8 trillion was dedicated to individuals and families. Along with this massive influx of cash, the Federal Reserve maintained interest rates lower than during the Great Recession—which resulted in record breaking returns on stock market investments.
Padded savings accounts can help to explain why the economy is continuing to grow despite Fed interest-rate hikes. If the Fed wants to get inflation under control, it could mean more aggressive maneuvers to slow down spending.
Some experts are looking at consumer spending and pointing to a potential multi-year recession. Hedge funder Michael Burry—who predicted the 2008 housing crash—is among them.
Burry warns Americans that when consumer savings run out, corporate profits will see major losses—all but guaranteeing a recession. While other investors are predicting a short or mild recession, Burry is not nearly as optimistic.
