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Financial well-being hits highest level since 2013: Fed report

Yahoo Finance Live anchors break down the chart of the day.

Video Transcript

BRIAN CHEUNG: Time now for our chart of the day. This coming from a new report from the Federal Reserve just about an hour ago showing that financial well-being was at the highest level since at least 2013. About 78% of the about 11,000 households surveyed here said they were either doing OK financially or living comfortably.

Now the caveat to this, Akiko, is that the survey was done in October and November of last year, kind of before we started to see inflation further accelerate. So whether or not that has had an impact on these households is something we won't see until the next print on this report next year. But interesting to see that, at least ahead of inflation, the average American household seemed to be doing relatively OK, likely thanks to some of that stimulus.

AKIKO FUJITA: Well, and I wonder how much of that, the fact that they had that financial cushion, that they were in a good spot, how much of that has sort of driven prices higher, right? Because we've seen that even though companies--

BRIAN CHEUNG: The cycle.

AKIKO FUJITA: --are willing to push prices higher because customers are still willing to pay for that.

BRIAN CHEUNG: Yeah, and I think that that's something that, again, hasn't been borne out in this report, but if you kind of read the tea leaves, you make the assumption that, well, if households had a lot more savings, they can use that savings, tap into it to do more spending, consume more things in the economy. That demand allows companies to push prices higher.

So at some point, though, you get that demand destruction where there's the kind of saturating point where companies continue to drive prices up, and then, you know, households no longer want to buy things, and then that type-- that sort of trend starts to reverse.

Now, again, we haven't seen that based off of this survey particularly, but what's very interesting is that the Fed specifically said-- you don't hear the central bank talk a lot about fiscal policy, but they said that a lot of the household wealth was because of the child tax credit getting boosted in 2021. That was a windfall for specifically low-income households, which helped that in addition to home refinancing. That was a big aspect as well. So, you know, that very much driving the trends in 2021.

AKIKO FUJITA: Yeah, I guess that goes back to the argument or those who put forward the argument saying there's too much coming from the government and that helped pump things higher to where they are.

But, you know, you brought up a good point last week when we were talking about higher prices and, you know, whether consumer changes will lead to a bit of a pullback. I remember you said companies now know that customers are willing to pay, so they're going to keep the prices there if that threshold is holding.

BRIAN CHEUNG: Yeah, and as we've seen from the recent CPI and PCE prints, that has not faded quite yet, although company earnings calls might suggest that there's a leading indicator on that front. Perhaps that's going to change very soon.