|

Older, Wealthy Americans Are Delaying Rate Cuts With Their Big Spending

Spending by older affluent Americans is helping grow the economy. But it’s also contributing to a delay in the Federal Reserve cutting rates.

Photo of older couple sitting on a bench while sightseeing
Photo by Matt Bennett via Unsplash

Sign up for smart news, insights, and analysis on the biggest financial stories of the day.

It’s a cliché at this point for Millennials and Gen Z to blame their financial woes on the Baby Boomer generation. But clichés exist for a reason.

Spending by older, affluent Americans is helping grow the economy, which is great. But it’s also contributing to a delay in the Federal Reserve cutting rates, which is bad for the younger, less wealthy people constantly battling stubborn inflation and high borrowing costs, the Associated Press reported. 

Out with the New, in with the Old

On paper, the American economy is doing well. The unemployment rate was at a low 3.8%, as of March, while GDP accelerated at a 2.5% annualized pace last year. And even Wall Street’s resident worrier, JPMorgan Chase CEO Jamie Dimon, recently said he was impressed by the economy’s “unbelievable” boom.

Total assets held by all Americans have surged to $147 trillion from $98 trillion at the end of 2018. However, the problem for younger Americans is the amount of wealth held by the older generation — and their willingness to spend it:

  • People 55 and over own nearly 75% of all household wealth. With gains in both the housing and stock markets, older people are spending more on expensive services like travel, entertainment, and healthcare, keeping prices in those sectors high, the AP reported. Also, many older Americans already own homes and cars, so they’re less affected by high-interest rates.
  • Just a month ago, the Fed was talking about potentially three rate cuts in 2024, but with consumer confidence strong and the economy continuing to grow, those cuts aren’t as justifiable. Americans will be lucky to see one by the end of the year, further delaying the younger set saving for down payments on cars, homes, and businesses.

“The Baby Boomers are the richest retiring generation we’ve ever had,” Edward Yardeni, president of Yardeni Research, told the AP. 

Run for the Shadows: This isn’t to say older Americans are a vacation-house-owning, cruise-taking, fancy-wine-drinking monolith looking down on the rest of us. A recent study in AARP found that 20% of Americans 50 and older have no retirement savings, and 61% think they’ll run out of money during their golden and twilight years.