Is the Resilient Consumer a Problem for the Fed?

The Downside of Sustained Strength in Retail Sales Source: Economics Group of Wells Fargo Bank, N.A. Summary Retail sales increased again in October with support across stores types, particularly autos and gas stations. Despite the apparent endurance, consumers are struggling to keep up the pace. Last time credit card borrowing was growing like it is now, we were heading into the 2008-2009 recession. Resilience to be Met by Fed Tightening The fundamentals are not supportive for consumer spending, yet retail sales continues to forge ahead. While it is certainly true that this is a nominal measure, even after adjusting for inflation, consumers are spending more. It is tempting to cheer on the “resilience” of the consumer, but the staying power of spending gives businesses no incentive to forgo price increases, thereby making the task of getting inflation in check more difficult for policymakers. The Federal Reserve has raised short-term interest rates from a top end range of 0.25% earlier this year to 4.00% at present; the fastest increase in short term borrowing costs since the 1980-1982 tightening cycle. READ FULL ARTICLE>>