Consumer Confidence and Household Resilience

This week brings several important economic indicators, and consumer confidence is the top among them. Despite headlines about tariffs and slowing savings yields, the consumer remains surprisingly strong. We hear from clients that bank savings account yields are declining, and that’s supported by the data: peak yields from money market funds have dropped since August of last year. However, these yields are still elevated by historical standards, dating back to 1990. Even as passive income from savings weakens, consumers are well-positioned. High credit card debt often dominates headlines, but household balance sheets remain healthier than many realize. Debt service payments as a percentage of disposable income are actually below the 2010s average. That’s due largely to the deleveraging that occurred throughout that decade. While we can’t say consumers are immune to higher prices, recent labor market improvements and the relative stability of tariffs suggest a resilient spending environment. Consumer spending drives both the economy and equity markets, so these indicators offer some optimism as we analyze upcoming reports.

Fed Policy and Economic Momentum

The Federal Reserve is in the spotlight this week, with market speculation swirling around potential rate cuts. While expectations at the start of 2024 called for up to ten cuts, the current outlook anticipates fewer than two by year’s end. That shift is driven by a stronger-than-expected economy and robust consumer activity. Two key charts support this: domestic air travel is at an all-time high, and total vehicle miles driven have not only recovered from the COVID dip but reached record levels. The takeaway? Consumers aren’t just spending; they’re traveling and engaging actively with the economy. Money market yields are another factor buoying spending. While interest costs are rising for some, others, like consumers with savings, are earning an estimated $25 billion a month in interest. That income supports ongoing economic momentum. Additionally, market indicators show little divergence from the Federal Reserve’s policy rate. The current spread between the Fed funds rate and the two-year Treasury rate suggests minimal anticipation of drastic changes. That aligns with a core truth: inevitability does not imply immediacy. Yes, rate cuts are likely on the horizon, but the timing remains uncertain, and the Fed appears appropriately cautious, not wanting to repeat the mistakes of the late 1970s, when premature cuts fueled inflation.

Tariff Updates and Liquidity Outlook

Tariffs remain a major talking point among clients, and last week brought important developments. Several trade agreements were finalized, just ahead of the August 1st implementation deadline for tariffs announced in April. Agreements with the Philippines, Japan, and the EU resulted in slightly reduced rates compared to the initial proposals. For example, Japan’s proposed 25% rate was negotiated down to 15%. As a result, the average U.S. import tariff rate has decreased from 21.6% in April to 13.5% today. While tariffs remain elevated compared to the start of the year, the impact has been less severe than initially feared, underscoring the importance of measured, ongoing negotiation. Another significant but less publicized event this week is the quarterly refunding announcement. Following the recent debt ceiling increase, the U.S. Treasury is set to resume debt issuance after a long pause. This shift will create a liquidity drain, as capital flows from the market into Treasury securities. The key question is how the Treasury will structure the new issuance. Favoring short-term debt could help prevent long-term interest rates from rising too quickly. We’ll be watching this closely, as it may influence market behavior more than any headline-grabbing Fed statement.

Greg Powell, CIMA®

President and CEO

Wealth Consultant

Email Greg Powell here

Bobby Norman, CFP®, AIF®, CEPA®

Managing Director

Wealth Consultant

Email Bobby Norman here

Trey Booth, CFA®, AIF®

Chief Investment Officer

Wealth Consultant

Email Trey Booth here

Ty Miller, AIF®

Associate Vice President

Wealth Consultant

Email Ty Miller here

Fi Plan Partners is an independent investment firm in Birmingham, AL, with a team of professionals serving clients across the nation through financial planning, wealth management and business consulting. The team at Fi Plan Partners creates strategies in the best interest of their clients using fee based investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Economic forecasts set forth in this presentation may not develop as predicted.

No strategy can ensure success or protect against a loss.

Stock investing involves risk including potential loss of principal.

Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.

The post How Soon We Forget first appeared on Fi Plan Partners.