Americans are struggling economically going into 2024, as harsh economic conditions in 2023 drained savings accounts, with factors like ever-rising prices and high interest rates weighing down consumers, experts told the Daily Caller News Foundation.
U.S. recession predictions are mixed going into 2024, with some credible sources like Deutsche Bank and Société Générale predicting a recession in the new year, while others are optimistic about the possibility for the Federal Reserve to achieve a soft landing, which could lead to future rate cuts. No matter the future of the U.S. economy, average Americans’ wallets took a hit in 2023 from factors like inflation, home prices and declining savings, leading experts that spoke to the DCNF concerned about consumers’ futures.
“Because real wages have declined so much over the last three years, consumers have turned to debt to maintain their standard of living,” E.J. Antoni, a research fellow at the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, told the DCNF. “Higher interest rates have added insult to the injury of inflation, greatly increasing financing charges on massive debt loads. The consumer is very strapped for cash right now. It’s difficult to find any honest metric that shows Americans had a good year in 2023. At best, the year was less negative than the previous year.”
The rate of inflation inched down to 3.1% in December year-over-year, still far higher than the Federal Reserve’s 2% target. Despite the recent deceleration in inflation, prices have continued to compound on the 9.1% inflation rate that was seen in June 2022, resulting in a decline in real wages of 2.1% as of January 2021, when President Biden first took office, according to the Federal Reserve Bank of St. Louis (FRED).
To make up the difference, Americans are having to burn through their savings, declining to a cumulative $839.8 billion in November, down from the over $1 trillion Americans held in May and down even further from the all-time high of nearly $6 trillion held in April 2020 following COVID-19 pandemic stimulus checks and business slowdowns, accordingto FRED. The lack of discretionary cash for consumers led to only a 3.1% increase in retail sales around the holiday season year-over-year, which matches inflation, indicating no real gain.
“Americans continue to struggle under Bidenomics,” Michael Faulkender, chief economist and senior advisor for the Center for American Prosperity, told the DCNF. “Its central premise is that the US government can better allocate people’s hard-earned money than they can do for themselves. Therefore, the administration has created a centralized, top-down approach that restricts choice, creates additional burdens, and raises prices. The 40-year high inflation Americans suffered at the beginning of the President’s term is the natural consequence of this economic approach.”
Many economists attribute, at least in part, the high inflation seen under Biden that plagued 2023 to his administration’s high spending policies, which are expected to continue into 2024. As a result, the federal government’s deficit reached nearly $2 trillion in fiscal year 2023 when Biden’s failed student loan forgiveness program is correctly counted, higher than the $1 trillion seen the previous year.
Read: ICE Criminal Arrests Tick Up In 2023 But Remain Well Below Trump Admin Totals
“This has taken mortgage rates to levels not seen in more than 15 years and means that many families are trapped in homes that no longer serve their needs,” Faulkender told the DCNF. “With wages still three percent lower in purchasing power than three years ago, high mortgage rates, decimated savings account balances, and credit card balances surpassing $1 trillion in 2023 for the first time ever, households are suffering from the devastating effects of Biden’s policies.”
Credit card debt exceeded $1 trillion for the first time in 2023 after rapidly climbing starting in May 2021, when Americans only held a cumulative $740 billion in credit card debt, according to FRED. The increase in debt and declining earnings and savings have led to a spike in delinquency transitions as of the third quarter of 2023 in all forms of debt, excluding student loans, rising most in credit cards and auto loans.
In response to high inflation, the Federal Reserve has placed its federal funds rate in a range of 5.25% and 5.50%, the highest rate in 22 years, placing upward pressure on all interest rates and making credit more expensive. The Fed projected that the federal funds rate at the end of 2024 would be 4.6%, indicating that the body anticipates lowering rates sometime in the new year, potentially providing relief to families saddled with debt.
“It seems unlikely that Powell & Co. will have the stomach to maintain current interest rates in an election year, prompting many people to expect a series of rate cuts beginning as early as the first quarter,” Antoni told the DCNF. “Those same people tend to think that lower interest rates will bring down home prices, but the opposite is likely true. With less money going to interest in a monthly payment, there’s more available for principal. The inverse relationship between home prices and interest rates will likely resolidify in 2024, meaning the cost-of-living crisis in housing isn’t going anywhere.”
Housing affordability sank in 2023, as home prices hit an all-time high in October after rising 4.8% year-over-year. The average rate for a 30-year mortgage reached its highest point since 2000 on Oct. 26 at 7.79% and has moderated slightly to 6.67% as of Dec. 21.
Cars have also seen a similar drop in affordability following the increase in the price of cars, coupled with rising car loan interest rates due to an increasing number of claims and pressure from the federal funds rate. As a result, the average amount a person can afford for a car payment fell below the average loan payment for both a new and used car.
“We’re poised to repeat the mistakes of the 1970s, with a second ride on the inflation roller coaster and a future recession that gets worse the longer we put it off,” Antoni told the DCNF. “The sins of the past always catch up to you, be they moral or monetary.”
Android Users, Click To Download The Free Press App And Never Miss A Story. Follow Us On Facebook and Twitter. Sign up for our free newsletter.
We can’t do this without your help. Visit our GiveSendGo page and donate any dollar amount; every penny helps.