Poorer and middle-income Americans are increasingly struggling to make ends meet as higher energy costs add to inflation pressures, while a top Federal Reserve official said she could support a September rate hike if economic data warrants it.
Boston Fed President Susan Collins said businesses and households in the U.S. Northeast are being squeezed by inflation, which has remained above the Fed's 2% target for more than five years, according to a Financial Times report published Tuesday. In the interview, Collins said she was increasingly hearing from lower- and moderate-income households struggling to make ends meet.
"I hear about prices in every conversation, in some version," Collins said, referring to her talks with businesses. She added that among lower- and moderate-income households, she is increasingly hearing about challenges "making ends meet," while energy prices are particularly difficult in the region.
New England relies more heavily on heating oil during winter and also uses oil as a backup fuel for electricity generation, leaving the region especially exposed to higher crude prices.
Collins Signals September Hike
Collins supported keeping rates unchanged in July, saying policy was "mildly restrictive." But she said she could support higher rates as soon as September if the data called for it.
"I do see the possibility that economic conditions in the coming months will require tighter policy, and I would be prepared to raise rates in that context," Collins said.
The comments came ahead of the July inflation report, scheduled for release Wednesday, which could help shape the Fed's September decision. Inflation rose from 2.4% in February to 4.2% in May before easing to 3.5% in June.
June's cooler-than-expected inflation reading had reduced expectations for a near-term rate hike. Headline CPI fell 0.4% month over month in June, bringing annual inflation down to 3.5%, while core CPI was around 2.6%.
Households Face Pressure
The U.S. economy has also shown a widening divide between higher-income households and lower- and middle-income consumers. Higher-income Americans have remained more resilient, while middle-income households have been stretching each dollar and lower-income consumers have faced greater financial pressure.
Rising delinquencies in auto loans, credit cards and mortgages have also pointed to growing pressure on household finances.
More Americans have also been relying on credit to cover basic expenses. More than one-quarter of working-age adults who used credit cards to buy groceries either could not pay their balance in full or missed the minimum payment. Lower-income households had higher rates of missed credit card and buy now, pay later payments.
Labor Market Complicates Outlook
The rate outlook is also complicated by signs of a weaker labor market. A July jobs report showed 23,000 jobs were lost, while average job growth over the previous three months fell to 20,000, down from 73,000 in the first quarter.
Collins cautioned against reading too much into the latest payroll figures, saying private-sector hiring remained positive and the unemployment rate was relatively stable.
"With very volatile monthly labour job numbers and labour supply that is . . . growing more slowly," Collins said, policymakers should not be surprised by periods of negative job growth or unexpectedly strong hiring.
Still, she said inflation remained the bigger risk.
"There's much to watch there, but inflation is too high," Collins said.