Skip to main content

NRF Remains Bullish On Consumer Spending

Despite inflation and rising interest rates, the National Retail Federation's leading economist said Americans will keep on shopping.
Greg Sleter headshot

As the Federal Reserve considers additional interest rate hikes in an attempt to bring inflation under control, the National Retail Federation’s (NRF) top economist expects consumers to keep shopping. 

“The Fed’s tightening has kicked off a new cycle of adjustment and the outlook for interest rates has consequences for consumers and businesses alike,” said Jack Kleinhenz, chief economist with the NRF. “There is a growing list of uncertainties, and the risks are mounting. But underlying strength and momentum from both the consumer and business sectors are likely to offset a modest slowdown and should leave the economy bustling forward this year.”

While the Fed’s actions could mean higher car and mortgage payments, Kleinhenz said household finances have remained strong despite consumers’ worries over inflation and the war in Ukraine. The 4% year-over-year increase in retail sales in March showed consumers have the willingness and ability to spend as a result of job growth, wage gains and wealth accumulated during the pandemic as well as low financial obligations relative to income, he said.

Kleinhenz’s remarks came in the May issue of NRF’s Monthly Economic Review, which said inflation, though still strong, should slow in 2022 partly because year-over-year comparisons will be against already-elevated levels of spending in 2021. In addition, fiscal and monetary policies from the Fed and other agencies that have combined with ongoing pandemic-induced supply issues to drive inflation are coming to an end.

The Fed is working on two fronts to slow inflation. First, it increased interest rates by a quarter of a percentage point in March and is expected to slowly raise the federal funds rate to between 2.5% and 2.75% in 2023 – the highest level since the middle of the Great Recession in 2008. 

Secondly, this month it will likely begin reducing its assets holdings, which doubled to about $9 trillion during the pandemic. Selling off its balance sheet of government-backed and mortgage-backed securities should affect long-term interest rates and reduce the monetary stimulus the Fed has provided.

“The Fed is facing a tough problem,” Kleinhenz said. “Its playbook for tightening of monetary policy can exert pressure on demand. It doesn’t have a direct ability, however, to influence the supply side by producing more gas, planting fields of needed crops or manufacturing microchips.”

X
This ad will auto-close in 10 seconds