Savings Accounts Drain In Post-Pandemic America

( — Research from the Federal Reserve Bank of San Francisco determined that the excess savings Americans built up during the pandemic lockdowns will likely be exhausted during the current quarter, Fortune reported.

In a blog post on the San Francisco Fed’s website last Wednesday, researchers Luiz Oliveira and Hamza Abdelrahman said the updated estimates suggest that by June, American households had less than $190 billion of excess savings in aggregate. While the outlook is uncertain, the researchers estimate that the excess savings remaining will likely be depleted before the end of the third quarter of 2023.

Excess savings during the pandemic peaked in August 2021 at $2.1 trillion. Earlier this year, Oliveria and Abdelrahman estimated that as of March 2023, $500 billion of that aggregate excess savings from the pandemic remained.

However, recently revised data from the Bureau of Economic Analysis shows that disposable income was lower and personal consumption was higher during the final quarter of 2022 and the first quarter of this year.

As a result, Oliveria and Abdelrahman found that the aggregate excess savings were $50 billion lower than previously estimated, while second-quarter data shows that spending continued growing “at a solid pace.”

Most experts agree that the excess savings accumulated during the pandemic lockdowns helped the US economy continue to defy expectations for a downturn in 2023, despite the Federal Reserve launching its most aggressive cycle of interest rate hikes in several decades.

Fed officials acknowledged the impact of excess savings during their policy meeting in late July but suggested that the impact will likely fade soon as the stock of excess savings continues to decline.

Other factors that could lead to a slowdown in consumption include a softening of the labor market and the “increased price sensitivity” of consumers.

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