Economy Shows Signs of Slowing, Inflation Still Has a Majority of Americans Living Paycheck-to-Paycheck The U.S. economy experienced slower growth in the second quarter of 2023, with the gross domestic product (GDP) rising at a rate of 2.1%, falling short of the Federal Reserve's initial prediction of 2.4%.
Key Takeaways
- The Federal Reserve's deliberate strategy of raising interest rates over the past 18 months has played a role in the subdued economic growth.
- Inflation continues to affect American consumers' purchasing power, even as it shows signs of easing.
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The U.S. economy grew slower in the second quarter of 2023 than predicted, with the gross domestic product rising at a rate of 2.1%, below what the Federal Reserve had originally predicted to be 2.4%, according to government data.
The delayed pace is a win for the Fed, as it's been actively increasing interest rates over the past year and a half to curb persistent inflation, with 11 rate hikes thus far. Inflation, as of the last Bureau of Labor Statistics report on August 10th, stands at a 3.2% increase compared to the same period a year ago.
However, for some Americans, inflation is still eating away at their wallets.
According to a July report from financial service company, LendingClub, 61% of adults are still living paycheck-to-paycheck, a slight increase from the previous year's 59% — despite inflation coming down.
"Consumers are undoubtedly continuing to feel the impact of inflation and rising interest rates," Chris Fred, TD Bank's head of credit cards and unsecured lending, told CNBC.
Looking closer, it's lower-income workers who are feeling the squeeze the hardest. For those earning $50,000 or less, 77.6% are living paycheck-to-paycheck, compared to 64.8% of those making between $50,000 and $100,000.
Despite the positive GDP report, the Fed has hinted at more interest rate hikes to come and that inflation still remains too high.
At the Jackson Hole Economic Symposium last week, Fed chair Jerome Powell stated that in spite of the slowdown, the economy "may not be cooling as expected," and that more rate increases could be implemented.
"Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy," he added.
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