Americans burning through excess savings from the pandemic, SF Fed study says

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Americans are burning through the excess savings they accumulated during the COVID-19 pandemic thanks to a big burst of stimulus money from the federal government and limited spending, according to new research published by the San Francisco Federal Reserve. 

The findings show households could deplete that cash reserve this quarter, eliminating a vital safety net that has helped to keep millions of families afloat during the ongoing inflation crisis.

«Our updated estimates suggest that households held less than $190 billion of aggregate excess savings by June,» the analysis, published by San Francisco Fed researchers Hamza Abdelrahman and Luiz Oliveira, said. «There is considerable uncertainty in the outlook, but we estimate that these excess savings are likely to be depleted during the third quarter of 2023.» 

That is cause for concern as the Federal Reserve credited the savings buildup with keeping the economy rolling, despite dual headwinds from high inflation and rising interest rates. Policymakers have signaled that they expect a slowdown in consumer spending in coming months as that pandemic-era money continues to dwindle. 

US HOUSING MARKET DEFYING CRASH EXPECTATIONS AS SUPPLY SHORTAGE KEEPS PRICES HIGH

Cash reserves have been a vital safety net that helped keep millions of families afloat during the inflation crisis. (iStock / iStock)

«Tight financial conditions, primarily reflecting the cumulative effect of the Committee’s shift to a restrictive policy stance, were expected to contribute to