In recent news, the Consumer Price Index rose by 0.3% in April, a slight deceleration from March rates. However, the drop wasn’t steep enough to quell concerns of inflation continuing on at untenable levels, which may prompt the Federal Reserve to move forward with their incremental interest rate hikes.
Consumers are certainly feeling the effects of ongoing inflation, as CivicScience details in our latest Economic Sentiment Index (ESI) reading. Wrapped up in falling consumer confidence across a number of categories, including home-buying and personal finances, is outlook on the Fed’s interest rate hikes.
CivicScience first gauged public opinion on the Fed’s proposed rate hikes in January, asking whether people thought the increases will be positive or negative for the economy. Revisiting the survey now after the recent 0.5 point increase was approved reveals that today, fewer Americans feel negative about the rate hikes, falling from 41% in January to 33% in May (n=2,653). Approximately the same percentage feel the rate hikes will be positive (34%), while more people now feel they won’t have any impact (18%).
Related to rising interest rates, “recession” is on the tip of everyone’s tongue. The Fed itself warns rapidly rising interest rates coupled with pernicious inflation at current levels could, worst-case scenario, lead to a recession.
Survey results suggest that fears over a recession are already running more hot than warm. Over 40% of the Gen Pop is “very concerned” about the U.S. entering into a recession in the near future, outweighing those who are “somewhat concerned.”
Top earners making $100K or above per year are the most likely to feel on edge about both rising interest rates and a recession. While 40% have faith in the Fed’s capability to stabilize the economy, a greater percentage are skeptical and feel the results of the rate hikes will be negative. More than half of these earners are also very concerned about a coming recession.
The question then turns to how the current climate is impacting consumer choices. CivicScience looked at how many Americans are likely to fast-track certain consumer financial activities, such as paying off debt or purchasing a home, before interest rates rise further – as well as how many are likely to postpone those activities. The surveys asked about four key areas: purchasing a new home or vehicle, paying off debt, opening new lines of credit or home equity, and taking out student or personal loans.
Topline data show that, first, these activities are highly likely to be impacted by interest rate hikes – at least 4 in 10 U.S. adult respondents said that they will change course in one or more of the categories included in the survey. And results are mixed. A greater percentage (40%) plan to postpone activities such as buying a car or paying off credit card debt (n=2,724). However, nearly one-third (31%) are likely to fast-track their plans (n=2,724).
Taking a closer look, paying off credit card debt is the number one thing that consumers are likely to fast-track to lessen the blow of the rate hikes – 16% of respondents plan to pay off credit card debt sooner than later. That’s followed by around 10% who say they’ll speed up searching for a car and/or paying off mortgages or other kinds of debt, which could include refinancing.
Home-buying ranked lower on the list at 6% for ‘fast-trackers’, but this could in part be attributed to a smaller segment of the population in the market for homes than those with credit card debt or mortgages. Additional CivicScience data show that intent to purchase a home before the year’s end climbed one percentage point since March. Currently, 8% of people in the market are looking to buy within the next six months.
However, survey results also show that a significantly greater percentage of the Gen Pop (18%) will put their home-buying plans on ice in response to rising interest rates, rather than speed up purchasing. Even more – nearly a quarter (22%) – will hold off on buying a car, which is more than twice that of people who plan to fast-track buying one.
In short, consumers have mixed feelings on how rising interest rates will impact the economy, but most are worried about a recession, particularly higher-income households. Alongside these sentiments, the housing, credit, and financial industries are likely to see increased volatility in the near future, as consumers respond to current economic conditions and expectations for the months ahead. To sum up the survey findings, in the big picture:
- More consumers are likely to fast-track paying off credit card debt (16%) than they are to postpone it (12%).
- Consumers are nearly equally likely to speed up or slow down paying off mortgages or other kinds of debt.
- More consumers are likely to put off rather than rush to purchase a home or car; open new lines of credit or home equity; and/or take out student or personal loans.