Covid-19 savings are the fastest growing since 2008

Covid-19 savings are the fastest growing since 2008

American households and businesses are watching their financial cushions deteriorate rapidly as prices have soared and the Federal Reserve has raised the cost of borrowing money after socking away savings during the aftermath of the COVID 19 crisis.

That is the takeaway from the latest reading of S&P Global Ratings Financial Fragility Indicator, which rose rapidly during the second quarter this year, marking the fastest pace of deterioration since the Great Financial Crisis in 2008, and the dot-com crash in 2001.

The indicator returned to its long-term average of zero, but the pace of the move is much more alarming than the absolute level of the index, according to Beth Ann Bovino, chief U.S. economist at S&P Global Ratings.

Bovino said that American households and businesses were alarming by how quickly they sped through their savings during a phone conversation with MarketWatch.

That doesn't bode well for 2023, as the cumulative rate hikes take hold. The FFI is based on data collected and published by the Federal Reserve about the financial accounts of U.S. consumers and businesses. The higher the reading on the FFI, the less of a capital buffer available to help weather an unexpected expense.

After the crisis, consumers and businesses saw their savings buffers increase due to the lockdowns imposed during COVID 19 as well as the stimulus money put out by the government to consumers and businesses.

The trend is reversing rapidly, as capital buffers have nearly erased the entire post-pandemic rise.

The impact of inflation, which rose to its highest level in more than 40 years over the summer, has made the savings unwound fairly quickly during the first half of 2022, thanks in part to the fact that savings were being saved in the first half of 2022.

Bovino said that it's possible that the indicator could reach levels associated with severe economic stress as soon as next year.

American consumers and businesses are waiting to see the full impact of the Federal Reserve jumbo interest-rate hikes on the economy.

A pivot in policy of the Federal Reserve could avert a crisis, and that is perhaps the only thing that might be able to avert a crisis. Federal Reserve Chairman Jerome Powell said he would keep interest rates high until inflation wanes.

A team of global markets analysts at MFUG Bank said in a note to clients that they believe that the negative loop of tighter financial conditions can only be broken by the Federal Reserve.