• Half of Americans believe their finances are worse off since Biden took office
• The negative outlook is primarily due to high inflation, interests rates, and consumer debt
• Surveys show the economy will be the deciding factor in the 2024 election

Financial Situation Worse After Biden Elected

Since the 2020 election, the financial outlook for many Americans has taken a turn for the worse. According to a recent Bankrate survey, a staggering 50% of Americans now believe their financial situations have deteriorated over the past few years. Proving to be a significant blow to President Biden and his “Bidenomics” campaign theme, this downturn in economic confidence is shaping the direction this country takes in 2024.

The survey revealed that approximately 45% of respondents place the blame on President Biden and his economic policies. While 35% attribute their worsening financial situations to Congress. Another 27% hold the Federal Reserve responsible for their economic woes.¹

²

Surprisingly, only a minority of those who reported an improvement in their financial situations credited President Biden for this positive change. In fact, more than half of those who witnessed improvements believed that neither President Biden, Congress, nor the Federal Reserve had played a significant role in helping them.

Unrelenting Inflation

The White House has been keen to emphasize the steady decline in inflation as one of the successes of the current administration, yet many families have yet to experience any real relief. Economists argue that this decline is primarily the result of Federal Reserve interest rate hikes rather than the President’s economic agenda. Inflation has decreased from its peak of 9.1% to 3.7% but it is still far from the Fed’s 2% target.³

The Consumer Price Index (CPI) remains significantly higher than the pre-pandemic rates. The costs of essentials like food, gasoline, and rent continue to be far more expensive than they were just a year ago. As a result, Americans are now forced to allocate approximately $700 more per month compared to two years ago, according to data from Moody’s Analytics.

Political Impact

These ongoing economic challenges are expected to have a considerable impact on the 2024 election. An astounding 89% of respondents revealed that the state of the economy will be a major factor influencing their vote. A majority of respondents, 69%, stated that their cost of living has worsened since November 2020. Forty two percent reported that their short-term savings have taken a hit. Furthermore, 34% expressed concerns about their long-term investments, including retirement savings.⁴

Unsurprisingly, the perception of a declining economy varies significantly among political affiliations. Generally, Republicans and independents are more likely to view the economy as having worsened compared to Democrats. Nonetheless, most of all Americans seem to attribute their financial woes to President Biden, Congress, and the Federal Reserve, with President Biden being the most frequently cited reason.

Interestingly, the sentiment that personal financial situations are worsening appears to be more pronounced among older generations, particularly Generation X and Baby Boomers. These groups share concerns about the state of their retirement savings, cost of living, and overall financial well-being as they approach retirement age and grapple with the harsh reality of their financial situations.

Causes of Pessimism

Several economic trends appear to be shaping this negative financial outlook:

Interest Rates: Experts anticipate that interest rates will remain high throughout 2024, with no indications of cuts on the horizon. While these rates were increased to combat inflation, they have resulted in Americans paying more for car loans, mortgages, and home equity loans.

Inflation: Although inflation has decreased from its peak in 2022, it currently stands at 3.7%. Economists suggest that it may not hit the Fed’s 2% target until 2025 or 2026. High inflation leads to increased expenses across the board. It especially impacts the middle class and lower-income Americans who live paycheck to paycheck.

Consumer Debt: A significant number of Americans are grappling with substantial debt and minimal savings. Pandemic stimulus funds have been exhausted. Many individuals are now faced with repaying student loans and dealing with skyrocketing credit card debt. Studies indicate that 35% of Americans are carrying debt from month to month. The stress of which is taking a toll on their mental health.

Credit card debt has reached record highs, as have delinquencies. This growing reliance on credit cards raises concerns among economists, given astronomically high interest rates. The average annual percentage rate (APR) recently hit a new high of 20.72%, making it more expensive for consumers to repay their debt over time. The previous record was 19% back in 1991. The middle class is carrying a greater debt load at a greater cost as they turn to credit cards to cover everyday expenses.⁵

The New York Federal Reserve said credit card debt hit a record high at the end of September. It surged to $1.08 trillion from July to September, an increase of $48 billion. That is the highest level of credit card debt since 2003 and the 8th consecutive annual increase.

Furthermore, the amount of credit card debt contributed to a record total household debt of $17.29 billion. That is an increase of $2.9 trillion compared to the end of 2019.⁶

Delinquencies are also increasing. Borrowers are struggling with credit card, student, and auto loan payments. The number of newly delinquent individuals has surpassed the pre-pandemic level.

Future Outlook

Economic indicators suggest a 46% chance of entering a recession by September 2024, painting a bleak outlook for many. This general pessimism surrounding the economy has led to a collective feeling of hopelessness about the future.⁷

While economists and policymakers continue to grapple with high interest rates, inflation, and mounting consumer debt, individuals are left navigating an uncertain economic landscape. The importance of securing one’s savings and financial well-being cannot be overstated, especially in these turbulent times. Physical precious metals like gold and silver are seen as hedges against the potential repercussions of government economic policies. Notably, a Gold IRA offers an avenue for individuals to preserve and grow their wealth. To learn more about how a Gold IRA can serve as a shield for your savings, we encourage you to reach out to us at 800-462-0071.

Notes:

1. https://www.foxbusiness.com/economy/half-americans-believe-they-are-worse-biden-blow-bidenomics
2. https://www.msn.com/en-us/money/personalfinance/survey-1-in-2-americans-say-their-overall-financial-situation-is-worse-now-than-it-was-before-biden-was-elected/ar-AA1jznrj
3. https://www.foxbusiness.com/economy/half-americans-believe-they-are-worse-biden-blow-bidenomics
4. https://www.msn.com/en-us/money/personalfinance/survey-1-in-2-americans-say-their-overall-financial-situation-is-worse-now-than-it-was-before-biden-was-elected/ar-AA1jznrj
5. https://www.foxbusiness.com/economy/credit-card-debt-hits-new-record-delinquencies-also-rise
6. https://www.foxbusiness.com/economy/credit-card-debt-hits-new-record-delinquencies-also-rise
7. https://www.msn.com/en-us/money/personalfinance/survey-1-in-2-americans-say-their-overall-financial-situation-is-worse-now-than-it-was-before-biden-was-elected/ar-AA1jznrj

• The Federal Reserve kept interest rates unchanged after their latest meeting
• Some analysts think economic indicators show Fed rate hikes aren’t working
• A severe recession may be necessary to break the hold of inflation on the economy

Fed Pauses Rate Hikes

After its most recent meeting, the Federal Reserve choose not to raise interest rates again. Instead, they are taking a wait and see approach to observe the impact of previous rate hikes. While some may be happy to see a pause, others see a potential mistake.

¹

The facts on the ground show that the Fed’s policy isn’t working as anticipated. The economy is still too strong, and inflation is too high, even with 5.25 percentage points of rate hikes since March 2022. While the current 3.4% PCE rate (a measure of inflation that reflects changes in the prices of goods and services purchased by households for consumption) is better than the previous 7%, it is still far from 2%.²

In addition, the labor market is too resilient to reach the 2% inflation objective. The ratio of unfilled jobs to unemployed workers is well above the 1-to-1 ratio that Fed Chair Powell considers necessary.

Despite wages going up, overall inflation has outpaced wage growth. Consumers have been making up the difference with excess savings boosted by Covid relief. But those savings are running out. Consumers are cutting back and sinking into debt to stay above water. To make matters worse, spiking oil prices are eroding purchasing power and putting the brakes on the American economy.

Another indicator of the Fed’s policy not working is that the GDP is growing too fast. The third quarter of 2023 far exceeded the 20-year annual average for growth. Economists attribute the GDP growth to robust consumer spending and $1 trillion of government spending on infrastructure, green energy, and the semiconductor supply chain. Also, the sudden AI boom caused an S&P 500 rally that largely reversed the Fed’s tightening of financial conditions. Even if growth slows in the fourth quarter, it may not be enough to push inflation lower.³

These factors are leading analysts to think that the neutral rate Powell is aiming for may be higher than planned. The “neutral rate” refers to the level at which the interest rate neither stimulates nor restricts economic growth. It is often considered the ideal or balanced interest rate for the economy.

No Soft Landing

Economists have compared the Fed’s quest for a soft landing to a unicorn hunt. At this time, the Fed hopes that holding rates steady will result in 2% inflation without a recession. Historically, soft landings are almost as rare as unicorns. Only once, in 1994, has the Fed accomplished a soft landing. But the inflation it tamed was hardly comparable to the recent record heights.

The Fed is playing a dangerous balancing act. If rates aren’t high enough to push inflation down to 2%, inflation expectations could rise. When people expect prices to rise, they might buy things sooner, thinking it will cost more later. This can lead to higher demand for products and services, which, in turn, can increase prices. All the accomplishments of previous rate hikes could be undone. The Fed could be forced to return with more drastic rate hikes.

Unfortunately, it may take a severe recession to reach the 2% goal. In the 1980s, then Fed Chair Paul Volcker had to inflict a recession on the US to break the rampant inflation of the 1970s. Powell is amply aware of the history. Nonetheless, he may be repeating it.

Future Hikes

Fed Chair Powell is open to more rate hikes in the future. The Federal Reserve will keep the possibility open until all signs point to a steady path to 2% inflation. The problem is that the rate of inflation is growing chaotic. It slows, then speeds up and then slows again. When the stock market believes the Federal Reserve is done increasing interest rates, financial conditions get easier. This fuels more growth, and more inflation, so the Fed must consider another rate hike. Powell outright dismissed any talk of rate cuts soon.

It’s like the Fed is driving a car on a winding road with unpredictable weather. The Federal Reserve needs to adjust its speed and direction as the road conditions change, even though they don’t control the weather. They have an idea where they want to go, they just don’t have a clear vision to get there. And if they aren’t careful, they can steer right off a cliff.

According to some analysts, we are facing more than the risk of recession, we are facing the NEED for recession. Otherwise, the economy will be trapped in this endless up and down inflationary cycle. Whether its inflation or recession, things are going to need to get worse before they get better. If you are looking to protect your savings, now is the time to investigate a Gold IRA from American Hartford Gold. Contact us today at 800-462-0071 to learn more.

Notes:
1. https://www.fool.com/the-ascent/federal-reserve-interest-rates/
2. https://seekingalpha.com/article/4644859-market-wont-be-pleased-fed-message-this-week
3. https://www.investors.com/news/economy/why-no-fed-news-is-bad-news-for-the-sp-500/

• Massive 3rd quarter GDP growth caught economists off guard
• The growth occurred despite the Fed’s rate hikes meant to tame inflation
• Prominent Wall Street voices warn to prepare for an economic downturn

Warnings Amid Unexpected Growth

The economic landscape continues to surprise those in charge of mapping it out. In the third quarter, our Gross Domestic Product (GDP) showed surprising growth. It soared at an annual rate of over 5%. Such robust economic expansion contradicts expectations. It’s squashing the Federal Reserve’s desire for the economic slowdown needed combat rising inflation. Despite this sudden economic surge, Wall Street is weighing in with a pessimistic outlook on the future.¹

²

Let’s unpack the surprising economic growth in the third quarter. The GDP figures far surpassed the predictions, raising eyebrows across the board. As far the Fed’s policy goals are concerned, this should not have happened.

Economists point to the government’s fiscal policy as the reason. The budget deficit doubled in the past year. It reached an astounding $2 trillion, according to the Congressional Budget Office. This sizable deficit, more than 7% of our GDP, contributed to the boost in economic growth. Such deficits are typically considered a result irresponsible fiscal management unless we are facing an extraordinary situation like a war.

About $500 billion of the $1 trillion added to the deficit served as an indirect stimulus. The other half a trillion dollars didn’t add to the economy. Instead, it was put toward things like bailing out collapsing banks.

Another factor boosting the GDP was an unanticipated easing the government’s monetary policy. The Treasury took actions that wound up countering the effects of the Fed’s interest rate hikes. The Treasury Department halted some debt issuances and borrowed from various savings accounts. This happened because the Fed reduced its bond purchases. The Treasury responded by issuing fewer bonds. As a result, it made more money available to people.

Now that the effects of the deficit and the shift in monetary policy have been felt, this boost in GDP unlikely to be repeated. A return to fiscal tightening is pointing towards a shrinking economy and a recession.

The coming downturn has the attention of some of the most powerful voices on Wall Street.

Wall Street Weighs In

Amid this economic chaos, several renowned figures in the financial world are offering their perspectives.

Jami Dimon is the CEO of JPMorgan Chase. As uncertainty grows, he warned about the dangers of locking in an outlook about the economy. He pointed to the poor track record of central bank predictions.

“I want to point out the central banks 18 months ago were 100% dead wrong,” Dimon said. “I would be quite cautious about what might happen next year.” He is referring to when the Fed insisted that the inflation surge was just transitory. Then it shot up to a 40-year high of 9.1%. Fed officials also projected their key interest rate rising to just 2.8% by the end of 2023. The rate is now almost double that at 5.25%.³

Dimon doubted “this omnipotent feeling that central banks and governments can manage through all this stuff.” He then warned that the Fed funds rate could eclipse 7%.⁴

Dimon recommends investors be prepared for fresh challenges in the new year. “This may be the most dangerous time the world has seen in decades,” he concluded.⁵

Ray Dalio is a legendary investor and founder of the world’s largest hedge fund, Bridgewater Associates. He is pessimistic about the global economy. He identifies geopolitical conflicts and the historic levels of government debt as key destabilizing factors.

David Solomon is the CEO of Goldman Sachs. He gauged the strength of the economy through mergers and acquisitions (M&A). He points out that the economic stimulus and low interest rates during the post-pandemic period led to a boom in M&A activities. However, capital has now become scarce, leading to a significant reduction in M&A deals. This is leaving Solomon uncertain about the current economic climate.

Larry Fink is the CEO of Blackrock. He predicted interest rates will rise further. The increase will ultimately be due to heightened conflicts around the world. Not only will interest rates rise, Fink says that unless the wars are resolved, it will lead to a “contraction in our economies.”⁶

Steve Schwarzman is the CEO of the Blackstone Group. He believes that it will take time to move past the pain of inflation and higher interest rates. He pointed out that recession struck after the Arab-Israel war in 1973. He said, ” We’re coming off the top and we’re starting to go down, so that would say to me that next year perhaps is not so wonderful.” Schwarzman pointed to the fragile commercial real estate market that is now facing up to 30% vacancy rates. “That’s going to have a very bad ending.”⁷

Conclusion

With a GDP bump soon to be in the rearview mirror, Wall Street experts are offering pessimistic takes on the financial future. As the economic landscape undergoes rapid shifts and uncertainties, it’s crucial to diversify your portfolio and explore options that can withstand the economic turbulence. One such option is to consider a Gold IRA from American Hartford Gold.

With a Gold IRA, you can secure your assets with physical gold, a proven hedge against uncertainty. In times of rising inflation and economic unpredictability, physical assets like gold can provide a valuable safety net. Contact us today at 800-462-0071 to learn more.

Notes:
1. https://www.wsj.com/articles/get-ready-for-a-short-lived-economic-boom-da221867
2. https://www.bloomberg.com/news/articles/2023-09-06/us-economic-data-strength-has-fed-set-to-double-growth-outlook?embedded-checkout=true#xj4y7vzkg
3. https://www.cnbc.com/2023/10/24/jamie-dimon-rips-central-banks-for-being-100percent-dead-wrong-on-economic-forecasts.html
4. https://www.cnbc.com/2023/10/24/jamie-dimon-rips-central-banks-for-being-100percent-dead-wrong-on-economic-forecasts.html
5. https://www.cnbc.com/2023/10/24/jamie-dimon-rips-central-banks-for-being-100percent-dead-wrong-on-economic-forecasts.html
6. https://www.businessinsider.com/dalio-dimon-fink-schwarzman-solomon-economic-outlook-inflation-recession-war-2023-10
7. https://www.businessinsider.com/dalio-dimon-fink-schwarzman-solomon-economic-outlook-inflation-recession-war-2023-10

• The housing market is frozen in ‘gridlock’: not getting worse but not getting better
• High interest rates are dampening sales, keeping prices elevated, limiting supply, and increasing foreclosures
• With home equity becoming inaccessible, people are turning to physical precious metals for long-term stores of wealth

The American Dream of Homeownership Put on Hold

The American Dream of home ownership continues to be deferred. A once reliable long-term store of wealth is escaping the grasp of most Americans. As mortgage rates race to 8%, mortgage demand has plummeted to its lowest point in three decades. Housing affordability is now worse than it was during the peak of the 2008 housing bubble. And real estate experts fear the only thing that can fix the situation stands in direct opposition to the policy that created the problem in the first place.¹

Overall Housing Market Decline

The slide in the housing market is primarily due to the increase in interest rates. The average rate for a 30-year loan has been on the rise six consecutive weeks. It is now reaching 7.7%. This figure is the highest it’s been since November 2000. In comparison, the average rate stood at 3.9% before the pandemic hit. The Fed has hinted at yet another rate hike this year. There is an expectation that rates will remain high for an extended period of time.²

In response to the Fed’s aggressive interest rate hikes, there has been a dramatic shift in application volumes. The Mortgage Bankers Association’s index of mortgage applications fell a staggering 6.9% in the last week. They dropped to levels last seen in 1995. Application volume has shrunk by 21% compared to the same time the previous year. The demand for refinancing is no exception. It has fallen by 10% over the past week, down 12% from the same period last year.³

Affordability and Inventory

⁴

High mortgage rates are having a direct impact on housing affordability and inventory. Homeowners are hesitant to sell their properties. Those who locked in low mortgage rates now find themselves unwilling to sell while rates hover near two-decade highs. Consequently, there is a shortage of available homes for potential buyers, resulting in a surplus of demand.

The shortage of homes on the market has led to a plummet in sales. In 2021, mortgage rates had dropped to the mid-2% range, leading to a surge in home sales. However, after the spike in mortgage rates, sales have significantly decreased. This year is on pace for a 17% decline from 2022.⁵

Real estate experts suggest that the housing market will not rebound until more homes are available. Available home supply remains down by a staggering 45.1% compared to pre-pandemic levels. This scenario is unlikely to change until mortgage rates fall to at least the mid-5% range, according to experts.⁶

Homebuilders are unable to construct new homes quickly enough to alleviate the housing shortage, which has led to a gridlock in the housing market. The National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, has fallen for the third straight month, dropping by 5 points to 40. This is the lowest reading since January 2023, and any reading below 50 is considered negative.⁷

Home builders are doing everything in their power to attract buyers, including cutting prices. In October, 32% of builders reported cutting home prices to encourage sales. Typically, a near tripling of mortgage rates over such a short period would result in lower home prices as buyers can only afford so much. However, the scarcity of supply is keeping prices inflated. Homeowners are only selling if there is a life event necessitating a move, such as a death, divorce, or relocation for work.

The Fed’s Housing Market Trap

Experts in the real estate market have pointed out the paradox that the Federal Reserve and the housing market find themselves in. Although high interest rates were intended to combat inflation, they are preventing builders from increasing the housing supply. Thereby, reducing demand pressure and lowering prices. In the realm of housing, lowering rates would actually reduce inflation. Robert Dietz, Chief Economist of the National Association of Home Builders, stated, “Boosting housing production would help reduce the shelter inflation component that was responsible for more than half of the overall Consumer Price Index increase in September and aid the Fed’s mission to bring inflation back down to 2%. However, uncertainty regarding monetary policy is contributing to affordability challenges in the market.”⁸

Devyn Bachman, Senior Vice President of Research at John Burns Research and Consulting, stressed, “In order for the market to recover, we need more inventory. The only way we’re going to receive that inventory is if or when mortgage rates retreat.”⁹

Other Concerns

Adding to these concerns is the increase in home foreclosures across the nation. They have surged by 34% compared to the same time last year, according to real estate data provider ATTOM. Their data shows that foreclosure filings have spiked by 28% in the third quarter. Analysts fear the problem may worsen with the resumption of student loan payments.¹⁰

A poll conducted by Pulsenomics revealed that most economists believe that homeownership rates will be affected for at least a year by the resumption of student loan payments. In total, borrowers will resume paying approximately $10 billion a month, posing a significant challenge to the stability of the housing market.

Conclusion

As the deputy chief economist at First American Financial Corp said, “This market is anything but normal.”¹¹ The housing market is facing a challenging gridlock, with the root of the issue stemming from interest rate hikes aimed at curbing inflation. While homeowners watch their home equity grow, it remains locked in without an opportunity to access it without losses due to high mortgage rates. In such times of uncertainty, people should consider seeking additional pillars of support for their retirement. One solution that can weather the storm of interest rate hikes is a Gold IRA. Offering safety, stability, and long-term preservation of portfolio value, it stands as a reliable alternative to personal real estate in an unpredictable housing market. Contact us today at 800-461-0071 to learn more.

Notes:
1. https://www.foxbusiness.com/economy/mortgage-demand-plummets-new-three-decade-low-rates-race
2. https://www.foxbusiness.com/economy/mortgage-demand-plummets-new-three-decade-low-rates-race
3. https://www.foxbusiness.com/economy/mortgage-demand-plummets-new-three-decade-low-rates-race
4. https://unusualwhales.com/news/housing-affordability-in-the-us-is-near-all-time-lows-per-goldman-sachs
5. https://www.realtor.com/news/trends/the-housing-market-is-in-gridlock-and-why-its-not-getting-better-or-worse/#:~:text=%E2%80%9CThe%20housing%20market%20is%20in,better%20than%20the%20resale%20market.
6. https://www.foxbusiness.com/economy/mortgage-demand-plummets-new-three-decade-low-rates-race
7. https://www.foxbusiness.com/economy/homebuilder-sentiment-continues-downward-spiral-spike-mortgage-rates
8. https://www.foxbusiness.com/economy/homebuilder-sentiment-continues-downward-spiral-spike-mortgage-rates
9. https://www.realtor.com/news/trends/the-housing-market-is-in-gridlock-and-why-its-not-getting-better-or-worse/#:~:text=%E2%80%9CThe%20housing%20market%20is%20in,better%20than%20the%20resale%20market.
10. https://www.foxbusiness.com/economy/home-foreclosures-upswing-nationwide
11. https://www.realtor.com/news/trends/the-housing-market-is-in-gridlock-and-why-its-not-getting-better-or-worse/#:~:text=%E2%80%9CThe%20housing%20market%20is%20in,better%20than%20the%20resale%20market.