Unlikely Heroes: How Consumers Are Single-Handedly Propping Up the US Economy Amid Soaring Interest Rates in 2024
You may think that the heroes who will save the U.S. economy in 2024 will be the Federal Reserve, large-cap stocks, and big banks. But at the end of the day, it’s the American consumer who’s really keeping the economy stable.
This year, analysts are predicting that consumption will reach a tipping point where inflation and high interest rates from the Federal Reserve will curb consumption.
While high interest rates may help control inflation, they can also trigger unemployment and slow economic growth.
To the surprise of industry leaders like Bank of America CEO Brian Moynihan and JPMorgan Chase CEO Jamie Dimon, consumers have proven resilient.
In fact, the public has not only withstood the storm, but appears to have weathered it successfully. Bank of America also believes that the U.S. economy will have a positive outlook by the end of this year and into 2025.
Avoid “pain points”
The economy is growing steadily and avoiding a hard landing, which was once thought impossible, but now analysts are becoming very optimistic.
Bank of America economist Stephen Junod recently expressed a “constructive” view that the Fed will gradually cut interest rates over the next five quarters, to 3% by the end of 2025.
This stability should support real wage growth and consumer spending, a sharp shift from early forecasts of potential “pain points” for households.
Junod said that despite higher expenses such as mortgages and debt repayments, “consumers have largely adjusted to higher interest rates.”
Limited liquidity in the housing market has also dampened spending on furniture and renovations as homeowners avoid higher mortgage rates.
Juno warned that this could change as the Federal Reserve cuts interest rates to “unfreeze” the market, allowing more consumers to choose to move and make related purchases.
Strong holiday spending
Businesses are looking forward to the busiest quarter of the year.
According to data from Bank of America, Millennials and Gen Z are expected to spend $4,000 and $3,300 respectively during this holiday season.
Older adults plan to spend smaller amounts, with Baby Boomers budgeting $800 and Gen Xers budgeting $1,200.
Overall, consumption is expected to increase by 7% compared with 2023.
Despite the growth in consumption, 68% of Millennial and Gen Z respondents expect to feel financial pressure and plan to seek discounts.
Mary Hynes Droscher, head of consumer banking at Bank of America, said that “holiday shopping is moving forward,” with 49% of consumers planning to start shopping before Black Friday.
She added that consumers plan to spend more this year than last year, “It’s true[证明了]Consumer health as they look ahead to holiday season. “
Looking to 2025
Looking ahead to 2025, Juno said the Fed’s interest rate cuts will keep consumers active.
He explained that interest rate cuts will stimulate the turnover of the real estate market. “When consumers move, there is related consumption. New owners tend to purchase durable goods such as appliances.”
The slowdown in the real estate market has affected DIY demand.
Lowe’s reported second-quarter comparable sales fell 5.1%, while Home Depot lowered its annual sales forecast.
Junod said: “In short, we have reasons to remain optimistic about consumers. With inflation declining, purchasing power rising and the expected Federal Reserve interest rate cuts, we remain optimistic about consumers in the short to medium term.” (Fortune Chinese)
Translator: Liu Jinlong
Reviewer: Wang Hao
You could argue the economic heroes of 2024 were the Federal Reserve, mega-cap stocks, and big banks. But ultimately, it was American consumers who kept the economy steady.
Throughout the year, analysts anticipated consumers would reach a breaking point—where inflation and high Fed rates would stifle spending.
While that would have helped contain inflation, it could have also triggered job losses and slowed growth.
To the surprise of industry leaders like Bank of America CEO Brian Moynihan and JPMorgan Chase CEO Jamie Dimon, consumers proved resilient.
Indeed, not only has the public weathered the storm and seemingly made it out the other side, but Bank of America now believes a positive outlook can be relied upon through the end of the year and into 2025.
Avoiding a ‘point of pain’
Once thought impossible, analysts are now optimistic the economy has stabilized without a hard landing.
Bank of America economist Stephen Juneau recently expressed a “constructive” view, expecting the Fed to gradually reduce rates over the next five quarters, reaching 3% by late 2025.
This stabilization should support real wage growth and consumer spending, a significant shift from earlier forecasts of potential “pain” points for households.
“Consumers have largely managed higher rates,” Juneau noted, even if some expenses, like mortgages and debt service, are more costly.
Limited mobility in the housing market has also curbed spending on furniture and renovations, as homeowners avoid higher mortgage rates.
Juneau cautioned this could change as lower Fed rates “unfreeze” the market, allowing more consumers to move and make associated purchases.
Strong holiday spending ahead
Businesses are looking forward to their busiest quarter.
Bank of America data shows millennials and Gen Z expect to spend $4,000 and $3,300, respectively, this holiday season.
Older generations plan to spend less, with Boomers budgeting $800 and Gen X $1,200.
Across the board, spending is expected to rise 7% over 2023.
Despite higher spending, 68% of millennials and Gen Z respondents anticipate feeling financial strain and plan to seek discounts.
“Holiday shopping is getting earlier,” said Mary Hines Droesch, BofA’s head of consumer banking, with 49% planning to start by Black Friday.
She added that the fact that consumers are planning on spending more than last year “really [demonstrates] the health of the consumer as they look out to the holiday season.”
Looking to 2025
Heading into 2025, Juneau said Fed rate cuts will keep consumers engaged.
Lower rates could spur housing market turnover, he explained: “When consumers move, there’s associated spending. New homeowners tend to buy durable goods, like appliances.”
The slowdown in housing has already affected DIY demand.
Lowe’s reported a 5.1% decline in comparable sales in the second quarter, while Home Depot revised its annual sales forecast downward.
“All told, we have reasons to be constructive on the consumer,” said Juneau. “With inflation down, purchasing power up, and Fed cuts expected, we remain optimistic for consumers in the near- and medium-term.”