Federal Reserve officials held discussions on emerging financial pressures faced by lower- to moderate-income consumers. Meeting minutes reveal concerns about the potential effects of these strains on the economy.
The officials highlighted that these households are dealing with high living costs and have exhausted their pandemic-era savings.
One of the major worries is the increase in delinquency rates for both credit cards and auto loans among these income groups. Such financial trouble could lead to a rapid reduction in consumer spending, which is critical for economic stability.
They noted that higher interest rates are already causing spending to slow down.
On the other hand, some higher-income households are influenced differently. Their spending appears to be supported by rising asset prices.
The Federal Reserve kept interest rates at a high level throughout last month. Chair Jerome Powell expressed that the central bank seeks more evidence of inflation cooling before considering rate reductions.
While acknowledging some progress towards the 2 percent inflation goal, officials stressed the need for further improvements.
Powell also emphasized the delicate balance the Fed must strike when deciding on rate cuts. Reducing rates too soon could trigger inflation, while delaying cuts too long could impede economic recovery and expansion.
This tension was evident in the discussions among policymakers.
There are several factors that could keep inflation elevated, including geopolitical tensions, heightened trade conflicts, and persistent inflation in housing prices.
Conversely, some officials are wary that a cooling labor market might lead to increased layoffs, presenting another economic risk.
