But he expects that as these excess savings are depleted, the impact of monetary policy will become more apparent.
Saving grace
The impact of consumer savings built up during the pandemic has also been on the mind of Pimco North America economist Tiffany Wilding.
She says some of the areas that would expect to be impacted by higher interest rates, such as the housing market and the levels of capital investment made by businesses, have been responding in precisely the way that would be expected — that is, slowing down.
“This shows that the growth that is occurring is very reliant on the consumer,” she says.
Wilding adds that consumer spending power has probably lasted longer than many had expected “as wages have also risen and, more recently, wages have risen at a faster rate than inflation, meaning consumers have been boosted again”.
Adegbembo believes the impact of the excess savings rate in the US is such that it may require this to be depleted, alongside rate increases, for inflation to drop to the 2 per cent target.
Wade believes that while wages are now rising at a faster rate than inflation, and this keeps consumption strong, “it’s not the same as previously, where the savings glut was having an impact”.
“Companies now are under pressure on pricing from consumers and on margins from shareholders, and in that environment the jobs market may suffer,” he says.
Lagging indicator
The other area where the data may be producing outcomes that are different this time is the jobs market. Unemployment remaining low at a time when interest rates have risen is “unprecedented”, says Wade.
Adegbembo adds that the impact is sufficiently profound that it may mean economics needs to “evolve” past focusing on the level of unemployment.
She says this is because ageing populations in developed economies mean a smaller proportion of adult populations than ever before, and so comparing the unemployment rate today with previous periods is no longer relevant. Instead, she believes the number of vacant jobs in an economy is a better measure.
Wade notes that while the pandemic accelerated those trends, in the long-term, the size of the labour market is shrinking and this has to be factored into considerations.
He says that over the longer term this will make economies “more inflation prone”, but also that it does not change the shorter-term outlook, with central banks continuing to operate on the basis that higher unemployment will need to happen, even if it is a lower percentage number than people have come to expect relative to history.
