Despite higher prices and lower rates of employment, American saving rates have finally returned to their pre-pandemic levels. When people were stuck at home and sent checks saving rates reached record highs, exceeding more than 25%. It is no surprise household balance sheets are in their strongest position in years. Higher saving can be a good thing, it means a stronger financial cushion and security. But we are seeing that if it results from government transfers and restrictions on work, it can cause economic harm in the form of less labor market participation and higher inflation. Now that the saving rate has fallen hopefully the rest of the economy will normalize soon.
Source: FRED
Allison Schrager is a senior fellow at the Manhattan Institute. Follow her on Twitter here.
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