Fed analysis: Pandemic savings boom could fuel inflation

According an economic analysis released today by the staff of the Federal Reserve. The authors estimated that US households accumulated approximately $2.3 trillion in savings in 2020 and through the summer of 2021, well beyond what they would have saved had the income and expenditure components increased. to pre-pandemic levels. They also concluded that since last year, households have decumulated about a quarter of this excess savings, as the savings rate has fallen below its pre-pandemic trend.

The personal savings rate jumped from under 10% in the years before the pandemic to a high of over 26% in the second quarter of 2020, the authors estimated. Since the beginning of 2022, the rate has fallen below 5%. They also estimated that households in the bottom half of the income distribution still held about $350 billion in excess savings in mid-2022, mostly due to the increase in incomes induced by the fiscal stimulus in 2020 and 2021.

These excess savings were used to pay off debt, to invest in stocks and other financial assets or as a down payment for the purchase of a house, instead of keeping them in the form of liquid assets, thus displacing the where savings show up on balance sheets, according to the analysis. Regardless of how the money was spent, excess savings led to higher net worth and stronger balance sheets for low-income households, which continued to support spending and credit performance.

Households in the upper half of the income distribution hold the vast majority of excess savings, at around $1.35 trillion in mid-2022, the authors estimated. With this group able to travel and spend again, their excess savings are likely contributing to higher spending levels, they said. Still, the report’s authors added that recent demand from high-income households has likely been spurred more by past gains in stock and house prices than by their excess savings.