Consumer spending is still surging despite the high interest rates, causing the Federal Reserve to pause its efforts to control inflation. Even though borrowing costs for credit cards, mortgages, and consumer debt have increased, consumers are not being deterred from spending. This is because high interest rates were intended to slow down inflation, but the economy remains resilient due to continued consumer spending.
However, economists are concerned that this surging spending could also be contributing to keeping inflation high. Companies have no reason to stop raising prices if consumers continue to buy their products. If inflation remains too high, the Federal Reserve may need to keep interest rates at their current levels for longer than planned, rather than lowering them as intended.
Economists at Wells Fargo Securities, Tim Quinlan and Shannon Seery Grein, predict that the wait for the Federal Reserve to lower interest rates may be longer than expected due to strong consumer spending in February. They note that consumer spending has not been affected by the higher borrowing costs, indicating that it could continue to be a major factor in determining the direction of interest rates in the future.
