The US economy is still running on a post-COVID sugar high that's about to run out and make 2023 feel miserable
Roughly $5 trillion in government stimulus, historically low interest rates, and a salvo of emergency lending programs helped the US economy rocket out of its slump and stageBut that fast recovery came at a price.
Inflation started to heat up in the spring of 2021, first powered by used car prices but soon spreading to gas, food, and housing costs. The monetary-policy cops showed up at the party soon after, but by then it was too late. The Federal Reserve started raising interest rates this March, making all forms of borrowing more expensive and hitting the brakes on economic growth. Mortgages, car loans, and credit card debt got pricier over a matter of weeks. Yet inflation charged even higher in the following months, and data published last week showed one key inflation gaugeNot only has the economy fallen short of its projections this year, forecasts of next year's performance are even more worrying. Experts see 2023 featuring even higher interest rates, still-elevated inflation, rising unemployment, and a tougher job market for workers. The removal of huge stimulus and the shift to slower growth will be a"painful process akin to waking up the next morning with a hangover after a long, hard bender," Lauren Sanfilippo, director of Bank of America's Chief Investment Office, said. The bastions of the post-lockdown rebound are already deteriorating, and as a new recession looms, Americans are looking less prepared by the week.For starters, households aren't as flush with cash as they were one year ago. Americans built up a $2.1 trillion savings cushion through the early stages of the pandemic as spending plunged and stimulus hit households. But they've spent $630 billion — roughly one-third — of that buffer already, according to the
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