Former Bank of America Vice Chairman Keith Banks on inflation outlook, lead time and September PCE release on ‘Mornings with Maria.’
Inflation hit its highest level in four decades a little over two years ago, and although it has cooled significantly since then and the labor market remains strong despite high interest rates, American consumers are still feeling the pinch.
The economy is a top issue for voters as they head to the polls ahead of Election Day on Tuesday, and while pocketbook concerns are often at the forefront of voters’ minds, that’s especially true after the cycle of inflation that has hit the economy. in recent years.
Inflation rose to a 40-year high of 9.1% annually in June 2022 after pandemic-related supply disruptions and a buildup of government spending on aid programs. Although it has since fallen to 2.4% in September and the labor market remains strong amid the Federal Reserve’s interest rate hike to slow the pace of inflation, rates are still about 20% higher than four years ago.
Gregory Daco, chief economist at EY-Parthenon, told FOX Business that the disconnect between economic development. economic measures inflation and the general economic evaluation of Americans is based on their evaluation of the price levels of the things they buy every day compared to previous years.
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Overall prices are about 20% higher than four years ago after inflation rose to its highest level in four decades in recent years. (Howard Schnapp/Newsday RM via Getty Images/Getty Images)
“Most people talk about inflation when they talk about price levels, so you’ll often hear people say, ‘the price of gas is high, I’m paying more for my food, I’m paying more when I pay. go to a restaurant.’ That is an indication of price levels, not so much how much prices have increased in the past year, which is a general measure of inflation,” he explained.
“So there is that dissatisfaction with that a bad feeling of people comparing prices to where they were four or five years ago versus where they were last year. That is one of the key elements of this paradox in the midst of an economy that is doing well, but people still feel depressed,” added Daco.
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Daco noted that the economy appears to have reached a “soft landing” because inflation is imminent The Federal Reserve’s 2% target. and the economy is still relatively strong, but Americans’ memories of economic conditions over the past few years have clouded their view of how healthy the broader economy is today.
“What this means for a lot of people is that you have a place where if you ask a lot of Americans how they feel about their situation, they’re going to say they’re generally decent … things are good. If you ask them about the broader economy, they’re usually going to have a more pessimistic view, and I think that reflects what’s happened over the years the last few years in terms of inflation being too high, interest rates too high,” he explained.
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Economic data showed a slowdown in inflation, while the labor market remained strong despite a slight cooling. (Michael Nagle/Bloomberg via Getty Images/Getty Images)
Lawrence Sprung, CFP and wealth advisor founder of Mitlin Financial, expressed a similar sentiment in an interview with FOX Business about the past few years informing Americans’ views on the economy.
“When I look back at what has happened in the last few years, I think people have been somewhat shocked in the midst of the COVID, in the midst of the inflation that has increased so much in the last few years, and the effects of that are still visible in some cases in the cash register,” he said. “Then there is uncertainty as well. everything around the election, those few things keep people a little bit, so to speak.”
“I think as long as employment continues to be strong, as long as we’re seeing wage growth and those things, I think those are put in place — and I think some would argue that we’ve already seen a soft landing, or maybe there. We haven’t been there at all because we just came in,” explained Sprung.
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“Some of these things are still being processed and because of the uncertainty of the election. I think that makes people a little bit more relaxed,” he said. “It reminds me of where we were four years ago election cycle – it was very similar, there was this relief that led to the election. That lasted for a while, but when we got over it, we were sure, things started to go better. “
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