A new poll shows that 70 percent of Americans believe a recession is coming and around two-thirds of those say they’re not financially prepared to face one down.
The survey, carried out by MagnifyMoney on a sample of 2,082 respondents, shows Americans are pessimistic about their odds of dodging a recession.
Just 6 percent believe a recession won’t materialize while 24 percent aren’t sure.
While 70 percent think a contraction in the U.S. economy is inevitable, 59 percent expect a recession will come as soon as within six months.
Most Americans say they’re vulnerable to the impact of a downturn, with 68 percent saying they don’t feel financially prepared for a recession, according to the poll.
“That last part is particularly troubling—especially considering that Americans are not too far removed from a period in which credit card debt fell significantly, savings rates soared to never-before-seen heights and delinquency rates stayed at or near historic lows,” Matt Schulz, chief credit analyst at LendingTree, which owns MagnifyMoney, said in a statement.
While Americans kept their credit cards in their wallets and paid down balances at the height of the pandemic, this trend has reversed as consumers struggle with soaring prices.
American consumers added $22.35 billion to their debt load in May, according to Fed data, a year-over-year increase of 5.9 percent.
Revolving credit, which is mostly made up of credit card debt, jumped by $7.42 billion in May, representing an 8.1 percent year-over-year increase.
Still, according to the Federal Reserve Bank of Philadelphia, credit card balances remain 11 percent below pre-pandemic levels, suggesting that American consumers still have some wiggle room to bolster their spending with plastic. But as the Fed hikes interest rates, credit card borrowing costs will likely rise, squeezing household budgets.
Average Credit Card Debt Tops 20 Percent
The average credit card interest rate in the United States has climbed to 20.82 percent, topping 20 percent for the second month in a row, according to the latest data from LendingTree. Last month marked the first time since the tracker began in 2018 that the average U.S. credit card interest rate broke above 20 percent.
“With the Fed hinting at at least a few more hikes to come later this year, interest rates are virtually certain to keep rising—and soon,” Schulz said in a statement.
The Fed recently hiked rates by 75 basis points and signaled it would stay on track with restrictive policies unless they see data showing inflation easing. Government data released on July 13 showed U.S. inflation accelerating in June to an annualized pace of 9.1 percent, the highest in around 40 years.
“Even when the peak of inflation is eventually seen in the rearview mirror, it seems unlikely that we will have moved past the point of concern about high prices,” Bankrate Senior Economic Analyst Mark Hamrick told The Epoch Times in an emailed statement.
Hamrick said a Bankrate survey of economists showed that one in three believe inflation will continue to push higher.
“When asked about the chances of a recession through the end of 2023, they collectively put the odds at about 50–50. Another bad outcome could be stagflation, meaning a combination of weak growth and elevated prices,” he added.
Besides the actual pace of inflation running at a 40-year high in the United States, future inflation expectations are tracking at or near record highs.
‘Break the Inflation Mentality’
Short-term inflation expectations among Americans have jumped to a new record high, according to the latest data from the Federal Reserve Bank of New York.
“Median one-year-ahead inflation expectations increased to 6.8 percent, from 6.6 percent in May, marking a new series high,” the Fed said in a July 11 statement. The three-year-ahead and five-year-ahead inflation expectations have eased slightly, though they remain historically elevated.
Billionaire real estate mogul Sam Zell told Bloomberg in a recent interview that the Fed’s easy money policies of recent years have contributed to soaring inflation.
“We have to reduce that liquidity and, in the process, we’ve created significant inflation that I think is only controllable by raising interest rates and maybe putting us into a recession,” Zell told the outlet.
He said the Fed needs to stay on course and keep hiking interest rates in order to “break the inflation mentality,” presumably referring to future inflation expectations.
Traders and economists expect the Fed to raise the benchmark rate by another 75 basis points when the FOMC meets at the end of July.