Prices have risen dramatically since the pandemic as households built up their cash reserves while staying at home and cashing stimulus checks. The increase in demand, coupled with supply chain shortages and increased production costs, has caused inflation to soar to multi-year highs.
In an interview with Yahoo Finance's Julie Hyman and Brad Smith, Raymond James Chief Economist Eugenio Aleman said, "The Fed is doing the correct thing. Interest rates on savings are going up, so that will put pressure on consumers between consuming and saving, which is something that we haven't had for the last 20 years or so."
Noting that dilemma between spending and consuming, Aleman says, "The biggest issue today is the consumer because we have seen that residential investment has been down for the last six consecutive quarters. So that has not been able to bring down the economy because consumption has been relatively strong last year," said Aleman.
In addition to the consumer's decision to spend or save, Aleman notes that consumption funded through high-cost debt is also a problem. Aleman says the Fed is also looking for a slowdown in credit card borrowing, which hit an all-time high in the fourth quarter of 2022.
Key video Moments:
00:00:01 What's causing stubborn inflation
00:00:44 Is the Fed doing the right thing?
00:00:58 Interest rates on savings
00:01:25 The Federal Reserve and credit card borrowing
