Americans’ savings are critically low, but that hasn't bothered markets yet
|Friday saw the release of the last important piece of the inflation puzzle ahead of next week's Fed meeting. The FOMC's preferred measure of inflation, the Core Personal Consumption Expenditures Price Index, rose 0.2% m/m and 2.6% y/y, keeping the annual rate of increase at its lowest level since March 2021.
Alongside the more neutral inflation data, we continue to see alarm bells ringing for US consumer activity. Personal spending rose by 0.3% in June, compared with income growth of 0.2%. Households saved $703bn, or 3.4% of disposable income, the lowest level in 18 months.
Aside from the pandemic in 2022, the only other time in US history that savings were this low was between 2005 and 2008, leading to the Global Financial Crisis. After that, people's desire to save by rebuilding a financial safety cushion severely delayed the economic recovery. At that time, the situation was largely rescued by the huge government spending that has since become the norm. Today, rising debt and chronic deficits severely limit the scope for government stimulus as the economy contracts, and this could be a multi-year problem.
The recent data, which were close to traders' and analysts' average forecasts, did not lead to a significant reassessment of the markets.
At the same time, they kept the Dollar Index above its 200-day moving average, which the DXY has been trying to break daily since the 19th. At the same time, equity indices are seeing increased buying, with the Dow Jones and Russell 2000 posting gains of almost 1.3%. The latter is only 1.35% below its 2.5-year high of 17 July. The Dow Jones is trading above 40,000 but still close to this psychologically significant round level. The S&P500 is hovering around its 50-day average.
Next week promises to be a bellwether for market sentiment. It will be dominated by meetings from the Fed, Bank of Japan, and Bank of England, as well as the monthly NFP employment report.
This concentration of news, coupled with the proximity of key levels, has a good chance of setting the trend for the coming weeks.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.