The Federal Reserve's Survey of Household Economics and Decision Making (SHED) report released on Monday revealed that historically high inflation took a toll on Americans' finances last year. Rising prices outpaced wage gains and chewed into household budgets. The share of Americans who reported they were worse off financially than a year earlier jumped from 20% to 35%, which is the highest level since the question was first asked nearly a decade ago. Overall financial well-being declined markedly with 73% of respondents saying they were doing at least okay financially last year, a drop of five points from the year prior.
The Fed stated that "inflation affected people's spending and saving choices in several different ways," pointing out that nearly two-thirds of adults stopped using a product or used less because of higher prices, 64% switched to a cheaper alternative, and more than half (51%) of Americans reduced their savings due to their budgets being squeezed.
Working adults also showed greater anxiety about being able to afford to retire. Only 31% of non-retirees reported that their retirement savings plans were on track last fall, a nine-point drop from 2021. Although inflation has eased from a peak of 9.1%, it remains roughly more than double the pre-pandemic average and well above the Fed's 2% target rate. The Fed has raised interest rates 10 consecutive times to the highest level in 16 years in its most aggressive tightening campaign since the 1980s as it battles to bring prices down.
Another survey released Monday shows America's top economists do not expect the central bank to reach its 2% goal any time soon. The National Association for Business Economics (NABE) outlook survey found just 2% of business forecasters said they believe inflation will have slowed to 2% by the second half of 2023, while a 59% majority don’t believe inflation will decline to the Fed’s target level until 2025 or later.