US consumers are still spending, but JPMorgan says the cushion against higher prices is thinning
The US consumer is holding up, but JPMorgan's Marianne Lake says the forces that have propped up American households might be eroding. Lake, who is CEO of JPMorgan's sprawling consumer and community…
The US consumer is holding up, but JPMorgan's Marianne Lake says the forces that have propped up American households might be eroding. Lake, who is C
Read Full Story at Yahoo Finance →Why This Matters
The resilience of US consumer spending masks deeper vulnerabilities in household finances, signaling that the economy may be approaching a tipping point. If the "cushion" against inflation—built on savings, credit, and wage growth—continues to thin, it could force a sharp pullback in spending, which accounts for nearly 70% of GDP and has been the primary driver of growth since the pandemic.
Background Context
The post-pandemic economy relied on a unique cocktail of factors to sustain consumer demand: trillions in excess savings from stimulus checks, low unemployment pushing wages higher, and historically low interest rates that made borrowing cheap. However, these conditions are now reversing, with savings depleted, credit card delinquencies rising, and the Federal Reserve maintaining higher rates to combat inflation.
What Happens Next
If household buffers erode further, we may see a two-tiered economy emerge, where lower-income households cut back sharply while higher earners maintain spending. This could widen inequality and force businesses to adjust pricing or inventory strategies. Policymakers will face pressure to either ease financial conditions or risk a sharper-than-expected slowdown.
Bigger Picture
This trend reflects a broader shift in the post-pandemic economic cycle, where the initial surge of pent-up demand has given way to a more fragile equilibrium. It also highlights the diminishing returns of monetary policy alone to sustain growth, underscoring the need for structural adjustments in wages, productivity, or fiscal support to avoid a consumer-led recession.
