Tiffany Wilding, an economist at the investment firm, said in a note to clients Thursday that the savings amassed by consumers during the pandemic may prolong the stronger-than-expected spending that’s bolstered the pace of economic growth. She notes that consumers have also been sheltered from the effects of rising mortgage costs since many already locked in low rates.
Pimco is among a growing list of Wall Street firms that are raising doubts that the Fed’s interest-rate hike in July will be its last. Such concerns fueled a selloff in the US bond market this month, with investors pushing up long-term Treasury yields on speculation that the US economy will avoid a recession and inflation will remain sticky.
Even with the recent bond-market moves, the futures market is still pricing in expectations that the Fed will start cutting rates in the first half of next year. Wilding said the excess savings will continue to be drawn down, given that savings rates are holding below their historic norm. And she said that some cracks are emerging, with data showing credit delinquencies are starting to rise in areas like auto loans, credit cards, and consumer installment loans, likely because of the toll that inflation is exerting on low-income households.
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