Consumer Behavior and the Outlook For Interest Rates

I am quoted by Forbes on consumer confidence and the economic outlook.

There’s a slight uptick in people saving more than usual: 12% compared to 10% a month ago. And 13% of respondents report putting more than usual toward their loans and credit card debt. These are two smart money moves during a recession, says David Kass, a clinical professor of finance at the Robert H. Smith School of Business, University of Maryland.

“Consumers under these conditions should consider paying down consumer debt and holding off on large purchases,” he adds.

Kass expects three more outsize rate increases in September, November and December, amounting to somewhere between 100 and 125 basis points in total. The current fed funds rate is 2.25% to 2.5% and the Fed predicts it will reach 3.1% to 3.6% by year’s end.

“These rate hikes will raise consumer borrowing costs, for example, on home mortgage and automobile loans,” Kass says. “In addition, the fear of losing their jobs as the economy slows down will result in consumers saving more and spending less.”