Inflation and interest rates hurting workers’ wages as 60% of Americans struggle to cope
Inflation and interest rates are continuing to hurt the value of American workers' wages.
Victoria Scholar, head of investment at Interactive Investor, issues inflation and interest rate warning
The majority of Americans are continuing to live paycheck to paycheck as high inflation and interest rates diminish peoples’ wages, according to new research.
From August 2023, 60 percent of respondents admitted that this was their reality in a LendingClub report.
This remains unchanged from the same time last year and comes after signs of inflation easing in the US.
However, the consumer price index (CPI) remains up at 3.7 percent from a year ago, based on figures from the Bureau of Labor Statistics (BLS)
A consequence of these higher prices is that worker paychecks have been detrimentally impacted.
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The Department of Labor reports that average hourly earnings declined last month by 0.5 percent.
Due to wage growth being unable to keep pace with inflation, families are still struggling with the cost of living.
Alia Dudum, LendingClub’s money expert, broke down the insight this latest report provides into the US economy.
She explained: “The data underscores the pervasive nature of financial challenges affecting a majority of consumers. The problem is that there is more month at the end of the money.”
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To mitigate the impact of inflation, the Federal Reserve has raised the funds rate 11 times in a row.
As it stands, the Federal Funds Rate is sitting at a range of between 5.25 and 5.5 percent which is the highest it has been in 22 years.
Last week, the central bank chose to leave interest rates unchanged for the first time in months at its latest policy meeting.
However, the Fed’s chair Jerome Powell confirmed the financial institution wants to see inflation reach the desired target of two percent.
Due to this, further interest rate hikes from the Federal Reserve may be ahead which adds further pressure on homeowners and other people with debt repayments.
Charles Tan, the co-chief investment officer of Global Fixed Income at American Century, outlined what the Fed’s thinking may be.
He explained: “With its recent pause-hike-pause strategy, the Fed hopes to orchestrate a soft landing to avoid tipping the U.S. into recession.
“Taking another break allows the economy to absorb the full force of the 18-month monetary policy operation.
“As we’ve noted previously, rate hikes can take up to two years to have the Fed’s desired effect on economic activity.”
