Finance
Middle-income Americans feel more optimism about finances and economy’s direction: survey
Middle-income Americans could be earning more on savings, according to a recent Santander survey. (iStock)
Although inflation is still a top concern, middle-income Americans said they’ve gotten used to higher prices and feel better equipped to handle their finances, according to a recent Santander survey.
Additionally, worries about an economic recession have taken a backseat for many Americans as they begin to accept the high-interest rate environment as the new normal. The number of respondents who expected a recession in the next 12 months dropped from 69% to 60%.
Consumer confidence hit a record high of 79.4 in March, the highest since July 2021, according to the University of Michigan’s benchmark Consumer Sentiment Index. The number reflects the improved consumer outlook that inflation will continue to soften and that personal finances will also be lifted as the effects of high prices and expenses on living standards ease.
However, consumers have had to make deep budget cuts to survive in a high-cost environment—67% of respondents said they cut out major purchases such as vacations, vehicles and home repairs, according to the survey.
“While middle-income households have had to navigate higher prices due to inflation, it is encouraging to see consumers taking positive steps to manage their finances and adjust their household budgets,” Tim Wennes, CEO of Santander U.S., said.
If you are struggling with high inflation, you could consider taking out a personal loan to pay down debt at a lower interest rate, reducing your monthly payments. Visit Credible to find your personalized interest rate without affecting your credit score.
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Americans can earn more on savings
Despite 74% of respondents saying they believe they are on the right path to financial prosperity, 60% are missing out on an opportunity to grow savings in a high-rate environment, with 56% still earning less than 3% interest, according to the survey.
“At the same time, many continue to miss out on the opportunity to leverage the current rate environment to grow their savings,” Wennes said. “For most consumers, this is the first time in a generation when they can be earning meaningful interest on their hard-earned savings.”
The Federal Reserve has raised interest rates 11 times since March 2022, pushing the federal funds rate to a 22-year high of 5.25% to 5.5% to lower soaring inflation.
Middle Americans could offset high costs by moving money into higher-yielding accounts like certificates of deposit (CD) and high-yield savings accounts. With CDs, cash is deposited for a fixed period, ranging from a few months to several years. In exchange, those funds earn a higher interest rate when compared to regular savings accounts. A high-yield savings account, also known as a high-interest account, offers higher interest rates on deposits than a traditional one. The interest rate is an annual percentage yield (APY) that fluctuates. However, these accounts allow you to make deposits and withdrawals.
If high-interest debt is putting a dent in your finances, you could consider paying it down with a personal loan at a lower interest rate. Visit Credible to get your personalized rate in minutes.
HOMEBUYERS GAINED THOUSANDS OF DOLLARS AS MORTGAGE INTEREST RATES FALL: REDFIN
Housing is still out of reach for many
The combination of high borrowing rates and home prices has put the dream of homeownership on ice for many would-be homebuyers.
The average 30-year fixed-rate mortgage has not dropped below 6.6% this year. Home prices recorded another gain in January and are now 6% above their level this time last year, up from 5.6% rise last month, according to the latest S&P CoreLogic Case-Shiller Indices report.
Higher mortgage rates and home prices mean that 20% of Americans spend roughly 30% of their paychecks on monthly home loan payments and 10% spend more than half of their pay on their mortgage, according to a recent NewHomesMates.com survey.
“When you’re saving up for a house, it can be hard to justify spending money on other things,” a NewHomesMate spokesperson said in a statement. “But the unprecedented high costs of today’s real estate are forcing potential buyers to make some extreme decisions. Not only are they slashing leisure spending and travel, but many are also cutting back on basic items like groceries.”
Homebuyers can find the best mortgage rates by shopping around and comparing options. You can visit an online marketplace like Credible to compare rates, choose your loan term and get preapproved with multiple lenders at once.
HIGH HOMEOWNERS INSURANCE RATES SCARING AWAY FLORIDA HOMEBUYERS, OTHER STATES FACE THE SAME ISSUE
Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.
U.S. Federal Reserve Chair Jerome Powell testifies before a Senate Banking, Housing and Urban Affairs Committee hearing on “The Semiannual Monetary Policy Report to the Congress,” at Capitol Hill in Washington, U.S., Feb. 11, 2025.
Craig Hudson | Reuters
The popular narrative among Federal Reserve policymakers these days is that policy is “well-positioned” to adjust to any upside or downside risks ahead. However, it might be more accurate to say that policy is stuck in position.
With an abundance of unknowns swirling through the economy and the halls of Washington, the only gear the central bank really can be in these days is neutral as it begins what could be a long wait for certainty on what’s actually ahead.
“In recent weeks, we’ve heard not only enthusiasm — particularly from banks, about possible shifts in tax and regulatory policies — but also widespread apprehension about future trade and immigration policy,” Atlanta Fed President Raphael Bostic said in a blog post. “These crosscurrents inject still more complexity into policymaking.”
Bostic’s comments came during an active week for what is known on Wall Street as “Fedspeak,” or the chatter that happens between policy meetings from Chair Jerome Powell, central bank governors and regional presidents.
Officials who have spoken frequently described policy as “well-positioned” — the language is now a staple of post-meeting statements. But increasingly, they are expressing caution about the volatility coming from President Donald Trump’s aggressive trade and economic agenda, as well as other factors that could influence policy.
“Uncertainty” is an increasingly common theme. In fact, Bostic titled his Thursday blog post “Uncertainty Calls for Caution, Humility in Policymaking.” A day earlier, the rate-setting Federal Open Market Committee released minutes from the Jan. 28-29 meeting, with a dozen references to the uncertain climate in the document.
The minutes specifically cited “elevated uncertainty regarding the scope, timing, and potential economic effects of possible changes to trade, immigration, fiscal, and regulatory policies.”
Uncertainty factors into the Fed’s decision making in two ways: the impact that it has on the employment picture, which has been relatively stable, and inflation, which has been easing but could rise again as consumers and business leaders get spooked about the impact tariffs could have on prices.
Missing the target
The Fed targets inflation at 2%, a goal that has remained elusive for going on four years.
“Right now, I see the risks of inflation staying above target as skewed to the upside,” St. Louis Fed President Alberto Musalem told reporters Thursday. “My baseline scenario is one where inflation continues to converge towards 2%, providing monetary policy remains modestly restrictive, and that will take time. I think there is a potential for inflation to remain high and activity to slow. … That’s an alternative scenario, not a baseline scenario, but I’m attentive to it.”
The operative in Musalem’s comment is that policy holds at “modestly restrictive,” which is where he considers the current level of the fed funds rate between 4.25%-4.5%. Bostic was a little less explicit on feeling the need to keep rates on hold, but emphasized that “this is no time for complacency” and noted that “additional threats to price stability may emerge.”
Chicago Federal Reserve President Austan Goolsbee, thought to be among the least hawkish FOMC members when it comes to inflation, was more measured in his assessment of tariffs and did not offer commentary in separate appearances, including one on CNBC, on where he thinks rates should go.
“If you’re just thinking about tariffs, it depends how many countries are they going to apply to, and how big are they going to be, and the more it looks like a Covid-sized shock, the more nervous you should be,” Goolsbee said.
Many risks ahead
More broadly, though, the January minutes indicated a Fed highly attuned to potential shocks and not interested in testing the waters with any further interest rate moves. The meeting summary pointedly noted that committee members want “further progress on inflation before making additional adjustments to the target range for the federal funds rate.”
There’s also more than just tariffs and inflation to worry about.
The minutes characterized the risks to financial stability as “notable,” specifically in the area of leverage and the level of long-duration debt that banks are holding.
Prominent economist Mark Zandi — not normally an alarmist — said in a panel discussion presented by the Peter G. Peterson Foundation that he worries about dangers to the $46.2 trillion U.S. bond market.
“In my view, the biggest risk is that we see a major sell off in the bond market,” said Zandi, the chief economist at Moody’s Analytics. “The bond market feels incredibly fragile to me. The plumbing is broken. The primary dealers aren’t keeping up with the amount of debt outstanding.”
“There’s just so many things coming together that I think there’s a very significant threat that at some point over the next 12 months, we see a major sell-off in the bond market,” he added.
In this climate, he said, there’s scant chance for the Fed to cut rates — though markets are pricing in the potential for a half percentage point in reductions by the end of the year.
That’s wishful thinking considering tariffs and other intangibles hanging over the Fed’s head, Zandi said.
“I just don’t see the Fed cutting interest rates here until you get a better feel about inflation coming back to target,” he said. “The economy came into 2025 in a pretty good spot. Feels like it’s performing well. Should be able to weather a lot of storms. But it feels like there’s a lot of storms coming.”
Walmart stock may be a steal.
Former Walmart U.S. CEO Bill Simon contends the retailer’s stock sell-off tied to a slowing profit growth forecast and tariff fears is creating a major opportunity for investors.
“I absolutely thought their guidance was pretty strong given the fact that… nobody knows what’s going to happen with tariffs,” he told CNBC’s “Fast Money” on Thursday, the day Walmart reported fiscal fourth-quarter results.
But even if U.S. tariffs against Canada and Mexico move forward, Simon predicts “nothing” should happen to Walmart.
“Ultimately, the consumer decides whether there’s a tariff or not,” said Simon. “There’s a tariff on avocados from Mexico. Do you have guacamole with your chips or do you have salsa and queso where there is no tariff?”
Plus, Simon, who’s now on the Darden Restaurants board and is the chairman at Hanesbrands, sees Walmart as a nimble retailer.
“The big guys, Walmart, Costco, Target, Amazon… have the supply and the sourcing capability to mitigate tariffs by redirecting the product – bringing it in from different places [and] developing their own private labels,” said Simon. “Those guys will figure out tariffs.”
Walmart shares just saw their worst weekly performance since May 2022 — tumbling almost 9%. The stock price fell more than 6% on its earnings day alone. It was the stock’s worst daily performance since November 2023.
Simon thinks the sell-off is bizarre.
“I thought if you hit your numbers and did well and beat your earnings, things would usually go well for you in the market. But little do we know. You got to have some magic dust,” he said. “I don’t know how you could have done much better for the quarter.”
It’s a departure from his stance last May on “Fast Money” when he warned affluent consumers were creating a “bubble” at Walmart. It came with Walmart shares hitting record highs. He noted historical trends pointed to an eventual shift back to service from convenience and price.
But now Simon thinks the economic and geopolitical backdrop is so unprecedented, higher-income consumers may shop at Walmart permanently.
“If you liked that story yesterday before the earnings release, you should love it today because it’s… cheaper,” said Simon.
Walmart stock is now down 10% from its all-time high hit on Feb. 14. However, it’s still up about 64% over the past 52 weeks.
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