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U.S. Household Confidence Shaken by Pervasive Inflation, Fed Survey Reveals

According to the latest Federal Reserve report, an unprecedented inflation wave has dented American households' financial security.

Shelves in a grocery store in the U.S.
Shelves in a grocery store in the U.S.

Erosion of American Financial Confidence

In a stark testament to the toll inflation has taken on American economic confidence, the annual Federal Reserve survey reveals a sharp drop in financial security among U.S. households. Many respondents reported shrinking their savings, postponing purchases, or switching to cheaper options. Fewer people felt secure about their financial stability, retirement, and overall spending ability compared to previous years.

Record Fall in Financial Satisfaction

Deteriorating financial satisfaction was notably marked, with a record decline in respondents who viewed their financial situation as "at least okay." The percentage dropped by 5 points from the previous year, reaching a low of 73%, the largest drop since the survey's inception a decade ago. Simultaneously, the proportion of respondents feeling financially worse off increased by 15 points to 35%, the highest since the question was added to the survey in 2014.

Retirement Security Concerns Amplify

A heightened sense of insecurity also encroached upon retirement savings. Among non-retired respondents, those believing their retirement savings to be "on track" fell from 40% in 2021 to 31% in 2022.

National Economic Outlook Dims

The souring mood towards personal finances has spilled over into the broader perspective on the national economy. Despite a low unemployment rate below 4%, only 18% rated the national economy as "good" or "excellent," a stark decrease from 50% in 2019.

Persistent Inflation: The Underlying Culprit

Inflation, which peaked at a 40-year high of 9.1% last year and remains high at 4.9%, has become a key risk for the U.S. economy, as per the survey that includes responses from a representative sample of 11,775 people. With 54% of adults stating that their budgets have been significantly affected by price increases, one-third of households cited inflation as their principal financial challenge, a fourfold increase from 2016.

Reduced Financial Resilience Amid Inflation

The ability of households to handle unexpected financial emergencies has also been adversely affected. Fewer respondents thought they could manage a sudden $400 expense using cash or equivalent means, down from a record 68% in 2021 to 63% in 2022.

While the picture painted by the survey is generally grim, it does highlight some positive trends. More adults reported receiving or asking for a pay raise or promotion last year, indicating a more proactive approach to mitigating financial hardship in these challenging economic times.