Sunday, February 25, 2024

Consumer debt threatens the economy

IMPORTANT POINTS:

  • Carl Weinberg warns that consumer overuse of credit cards and the associated high interest rates represent a significant risk to the US economy.
  • There is a potential “Goldilocks” scenario, where economic growth is sufficient to avoid a recession without causing inflation.
  • Monica Defend predicted a possible recession in the US in the first half of next year, due to the slowdown in consumption and depletion of savings.

The Consumer Dilemma: Between Spending and Debt

The economy of the United States is at an important moment, facing the challenge of moving away from a recession in the coming year. Carl Weinberg, a leading economist at High Frequency Economics, says one of the most important risks is the potential decline in consumer spending. Speaking on CNBC’s “Squawk Box Europe”, Weinberg warned: “Consumers are beginning to realize that they finance their consumption through credit cards, whose interest rates are currently uncontrollably high.”

Recession Risks and the ‘Goldilocks’ Scenario

Weinberg’s main view suggests a slowdown in economic growth, but not necessarily a recession. However, he warned of one big risk: the rise in credit card defaults, according to data from the Federal Reserve Bank of New York. “Real income is just starting to recover, and it’s not going to be enough to cover the increasing debt that we’re seeing,” Weinberg said.

What is the ‘Goldilocks’ Scenario?

This term refers to a situation where the economy grows enough to avoid a recession and a negative impact on the labor market, but not enough to fuel inflation.

Different Visions: The Recession According to Monica Defend

On the other hand, Monica Defend, head of the Amundi Investment Institute, predicted a recession in the US in the first half of next year. In “Squawk Box Europe”, Defend explained: “Financial conditions will eventually affect the American consumer, who will tire of overprotected savings during 2023.”

Impact of Monetary Policy and the Economic Future

Although the US economy remains strong this year, Defend maintains that the investment stimulus from initiatives such as the Inflation Reduction Act will not be enough to offset the slowdown in consumption. “The savings rate has decreased significantly, and this, along with the reduction in excess savings, means that we do not expect the American consumer to continue at the same level as in the last two years,” concluded Defend.

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World Nation News Desk
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